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Bank services 15 Jun 2017

When will technology win the cash war?

Sooner than you probably think. The question is how we will pay when coins and bills are of interest only to collectors.

In 2009, Paul Volcker, the chairman of the U.S. Federal Reserve during nearly the entire Reagan administration, regretted that despite all the noise and headlines, something as mundane as ATMs were the only real innovation in the financial sector in decades. Less than ten years since he made this statement, the pace of financial transformation has increased dramatically on the back of digitization. The physical is losing ground and being replaced by the virtual, so much so that the question is not whether bills and coins will disappear, but when.

This was one of the debates that took place at MoneyConf, an international conference on financial digitization that took place in Madrid in early June. Participating experts agreed on several resounding predictions. A cashless society is just a matter of time and it will be completely tied to the development of the Internet of  Things.

Victor Kim, Director of Samsung Pay for Europe, Africa and the Middle East, made a very clear recommendation to skeptics: “Go to Scandinavian countries like Sweden. Not having to worry about having cash is quite an experience.”

“Payments will be something that we barely even notice,” predicted Ivan Glazachev, CEO of Yandex Money, a Russian competitor of PayPal in the electronic payment business. Glazachev used payments at a gas station as an example. The car will communicate with the company that provides the gasoline and pay for it, without any human intervention in the transaction. This Russian entrepreneur spoke of a five- to ten-year period for this to become a reality. At that point, who knows if cars will continue using petroleum by-products or whether they will be driven by people?

Samsung Pay is focusing its attention on the technological development of vehicles, and all the business implications this could have. “We are working with a very clear idea that cars will become a sort of cell phone on four wheels. In all these devices we want to offer a series of services and payments are one of them,” explained Kim.

The future role of traditional banks

Payments are already one of the financial businesses that are affecting the development of fintech firms. If technology is increasingly important in finance, will large tech companies, such as Samsung, be the banking giants in the near future?

“It’s not our business,” Kim said, distancing himself. He knows the finance sector first-hand after working for Visa for nearly 15 years. “We know what our strengths and weaknesses are. We aren’t a financial services provider. Our strength is technology.”

However large tech companies evolve, banks must adapt to a new environment where they have new business lines, but also new, very agile competitors.  Anne Boden, CEO of Starling Bank, a digital-only British bank that obtained its license in 2016, stressed this point: “I think that what we know as banking today won’t exist in 30 years. Banking will no longer be something you do in a certain technological environment. Instead, it will be something that surrounds everywhere we live our lives.”

Regarding payments, Boden maintains that: “We will not go to an app to type and pay, or to check on our accounts.” These steps will take place through objects. For example, the mirror will reflect our account balances and we will order payments through a virtual personal assistant that places orders and pays for weekly purchases.”

All this may sound futuristic, but it is already starting to take place –  and you don’t need to go to Sweden, as Kim suggested, to see it. Today, in a city like Madrid, all types of transportation – buses, subways, taxis, car sharing and bike rentals – can be used without having even a euro in your wallet. Coins and bills are starting to go the way of newspapers, fax machines or VCRs. They will soon be remnants of a pre-digital past.

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