ATMs, Cards, Phones, Crypto…What’s Next in This Sequence?
In 1977 the Queensland Teacher’s Credit Union installed an ‘automatic teller machine’ (ATM) in Brisbane.
According to a Brisbane Times article from 2007, the QTCU General Manager, Mike Murphy, said:
‘This was a major change in the way people did their banking and although Australians are quick to embrace change they found dealing with machines that had control over their access quite daunting,
‘QTCU ran an extensive educational campaign to demonstrate to members the benefits of using the ATM and show them how much easier their banking could be.’
This wasn’t the absolute first ATM in Australia, but it was one of the earlier ones. The very first were said to be introduced in 1969.
But this cautious reaction from the general public was to be expected. When it comes to money, people are incredibly protective, as they should be. And change is hard enough without relying on a machine to give it to you.
But as we know, the public came around. And for many generations since they’ve only ever lived in a world with ATMs, so it’s just a natural way of accessing you cash, quickly.
However, the days of the ATM are numbered. The decline of ATM usage is thanks to the rise in cashless payments.
This started back in 1984 when Westpac introduced EFTPOS payment at BP services stations. This quickly expanded through to the end of the 20th century where most retail outlets offered some kind of cashless point of sale system.
Then in the late 2000s, Mastercard and Visa both introduced versions of ‘contactless’ payments. This evolved into the terminology of ‘Tap & Go’, where you could simply ‘tap’ your payment card on a POS terminal to make a payment.
This proved massively popular in Australia. In fact, Australia is one of the world’s biggest users of contactless card payments. And this has been a major contributing factor to the decline in ATM usage.
Of course the idea of just tapping your card on a payment terminal at first seemed a little silly, after all, anyone could just steal your card and tap to make purchases. But the adoption of contactless is astounding.
Research from 2016 showed 59% of Australians had used contactless payment cards. Compared to 16% in the US and 38% in the UK, Australia was light years in front of the world.
However, payment technology like this moves quickly. Soon after, payments and money truly entered the 21st century.
Digital money is still money
During the 2010s we saw the rise of the mobile contactless payments.
The likes of Android and Apple Pay are now standard mobile wallets on all new smartphones. And in places like China, mobile wallet payments have exploded.
WeChat Pay is a mobile wallet with over 806 million monthly users. Alipay, another Chinese mobile wallet provider, says they’ve got more than 1.2 billion users globally now. It’s also estimated that over 47% of China’s rural population uses mobile payment wallets.
And both Alipay and WeChat Pay are using facial recognition to enable people to make mobile-less payments. That means just looking at a camera at a POS terminal instead of using a card, or even a mobile device. The money then is taken from your default wallet.
But what’s astounding is that Australia is stubbornly reluctant to adopt mobile technology for payments. This is a hangover of the huge popularity in Tap & Go with a card — change is hard when you’re so used to one way of doing things.
While the rest of the world forges ahead with digital payments, innovation in payments and payment technology in Australia is stuck in the mud.
And based on recent comments from the powers that be at the Reserve Bank of Australia, it’s no great surprise. There’s no great push from ‘the top’ to change the way the system works.
China as we know is pushing hard into digital payment technologies. Their central bank is even about to release a state-backed digital currency — a quasi-cryptocurrency for their citizens.
We have no doubt this will seamlessly integrate with the likes of WeChat Pay and Alipay. And it’s also in our view a push by China to dislodge the USD as the global reserve currency of choice — but more on that in tomorrow’s Money Morning.
But as this story unfolds, we also believe that one of the most significant disruptions in banking and finance is going to be the story of the next 50 years.
We’ve gone from cash, ATMs to debit and credit cards, to contactless payments and mobile wallet transactions over the last 50 years. The next 50 years isn’t just about to stop when it comes to innovation and revolution in money.
While digital currencies from central banks will become abundant, it’s ‘money’ outside of the centrally controlled banks that will explode in popularity and usage as well.
And yes, I’m talking about the proliferation of cryptocurrency. Not only will there be cryptocurrency monetary systems outside of central bank control, but central banks themselves will rely on cryptocurrency to power their own currency.
For example, the AFR reports the RBA has just completed a trial using a private Ethereum network to test a digital currency.
What’s interesting is they saw there was actual benefit from using the technology.
But considering a history of moving with innovation in finance previously, the RBA is unlikely to pursue digital currencies and blockchain networks. Why? Well it would cause fundamental change to the financial system…and that’s not something they want.
Fundamental change means loss of control. And god forbid they acknowledge another system might work, or in fact be better than the fractured and broken system used today.
But if you ask the RBA, there’s nothing wrong with the current system. And therein lies the current problem with Australia and indeed much of the world.
Blinded by ignorance
According to Tony Richards, Head of Payments Policy at the RBA (speaking to the AFR):
‘There is a risk that if central bank digital currencies were wildly successful, it would lead to a fundamental change in the structure of the financial system.’
Err, that’s exactly the point of cryptocurrencies. Richards continued:
‘And that’s why most central banks have taken the view that digital currencies are an interesting idea, but they don’t see any significant problem with the current system.’
There we have it folks. Central bankers don’t see any problem with the current system. Except it’s expensive, inefficient, rewards the already wealthy, has incredible barriers to entry, is full of friction via third parties and intermediaries that are unnecessary.
It’s controlled by the ideas and ideals of a select few who time and time again are proven to be incapable of proper monetary management.
But of course they wouldn’t see any problem with the current system. And that’s precisely why the 2020s are going to see rapid, fundamental change in the financial system.
This change in the traditional system will be driven by the likes of China. They will force the hand of change with their grand plans for digital state-run currencies.
And running in parallel will be the construction of an alternative decentralised financial system. A system where you can transact anywhere with anyone without friction, with low costs, and without external control.
This system will be full of digital wallets, different currencies, exchanges, supply chains, and a flourishing ecosystem of fintech opportunities. It will be the global cryptocurrency system.
Sides will be chosen between the changing traditional system and the cryptocurrency system.
Some countries will move away from the traditional system. And some cryptocurrencies will move towards the traditional system.
Critics and slow adopters will be left behind. There will be huge opportunity on both sides depending on where you place your trust and how much you will be willing to change and adapt with the times.
It also puts Australia in a tough position. We’re smack bang in between China and their vision, and the US and their hubris. Then we’ve got to consider new generations of people that want a better and fairer system for all.
How that pans out I’ll look deeper at tomorrow. Also why China’s digital currency might be the most dangerous weapon of the 21st century.
Editor, Money Morning