“Cash rules everything around me,” Wu-Tang Clan famously quoted on its 1994 single C.R.E.A.M. And while cash has since declined in use (if not in value) almost 30 years later, money has always been one of the things that we think will always be there no matter the decade—or mainstream musical preference.
Is it, though? In today’s article, we’ll talk about how future money trends will shape how money would look like in the coming years—that is, if there would still be such a thing as “money” at all.
Future Money Trends Table of Contents
It’s official: cash usage is declining. In a report based on findings in October 2018, cash payments declined by 4%. Conversely, electronic means of payment have increased, such as debit and credit cards. The latter even increased by 2% from the previous year.
It’s tempting to say that cash is going to end soon, and electronic or digital payment is going to overtake it. However, the trends point to a steadily convoluted future of money. These trends include multiple, contract-based or transactional currencies, virtualization, and a gradual shift from traditional banking to digital-only banking. Bitcoin, thought to be a universal currency of the internet age, has since made its weaknesses known, even though it has a market capitalization of nearly US$175 billion.
Reasons Why People Stopped Dealing with Cryptocurrency
(Respondents can give more than 1 answer)
Market was too volatile: 31
Market was too volatile%
Lost money due to decrease in value: 23
Lost money due to decrease in value%
Not profitable for them anymore: 23
Not profitable for them anymore%
Currency is not backed up with real assets: 22
Currency is not backed up with real assets%
Lost money due to fraud or hacks: 15
Lost money due to fraud or hacks%
Just don't trust cryptocurrencies anymore: 14
Just don't trust cryptocurrencies anymore%
Source: Kaspersky Labs Cryptocurrency Report 2019Created by CompareCamp.com
So what’s going to happen to money in the next few years? We’ve compiled 7 of the likely scenarios in the following sections. And though we don’t have a crystal ball—they cost a bit more cash—we believe that money is going to be transformed, one way or another, by one (or many) of these predictions.
1. Money as Data
The increasingly digital world means a lot of what happens in it happens behind a closed curtain. The curtain, in this case, is the app environment that underpins them. One of the most visible of these is the act of payment (or any form of monetary exchange). For example, Uber allows you to board a car without actually rummaging around your purse to find cash. The app, which is linked to your credit or debit card electronically, automatically does this for you.
This means money in the 21st century is treated the same way as ones and zeroes—data.
Nothing here is new, though; customers have been using non-cash payment since the first Diners Club card in 1950. What’s different this time is the volume of transactions using a non-cash medium and the automation of payment. With machine-to-machine transactions, applications and networks are more and more treating money as just another form of data.
Storing that data will thus require the need for a virtual wallet. What form it will take is still up in the air, but they’re likely going to be mobile apps or wearables. Some fringe conspiracy theorists also believe it to be an implanted microchip.
2. The End of Cash
Using cash is indeed going to end. But not in the way that you think.
It’s common knowledge that the volume of electronic payments has been steadily growing relative to that of cash. However, most people disregard the fact that even while doing so, the amount of cash in circulation is also growing. For example, in 2018, there are about $ 1.5 trillion in general circulation. In 2020, that has grown to almost 1.9 trillion.
The reason for this is simple: choice. It’s increasingly clear that governments and financial regulators are not as keen on removing (or at least replacing) a working model. Therefore, most of them are instead adopting new policies and checks to accommodate multichannel payment. And if you think this regulatory environment is antiquated, keep in mind that a lot of fintech companies have shown that this is no barrier to success. Apple Pay’s operation, for example, is predicated on the existing payment infrastructure.
The other end of the camp is not so forgiving on their worldview, however. The death of cash will be upon us as one survey says by 2030, driven by an increased need for security (anywhere from petty theft to money laundering). Governments are also scrambling to migrate their societies into using a cashless payment ecosystem, notably Sweden, while others have made a foray into making a “national” cryptocurrency, such as China’s e-RMB. And while bitcoin shows no signs of stopping (according to these bitcoin trends), a central bank-backed cryptocurrency would have many advantages bitcoin doesn’t have.
No matter the case, we still have cash for at least five more years, but it will never be as widely used again. One disadvantage of cash is that it doesn’t hold value in a digital realm, and that’s where people will be.
3. Multiple Currencies
When the original Star Wars movie came out, people pined for a universal currency similar to the republic credits (later imperial credits) that will work anywhere there’s commerce. It won’t matter where you are in the galaxy; whether you’re trading in the Core systems or the Outer Rim, credit is credit, and its value is undiminished.
Sadly, we’re still years away from that economic system. We’re moving at lightspeed away from that dream—the future is about a narrower currency system. What this means is that instead of centralizing a currency for transactions, we’re going to have a currency for each contract—the so-called “smart contracts.”
How would this work? Look at some mobile games in the current generation. You will have several currencies in a single game, say, one set of coins for doing some tasks, another set for checking in daily, and still another that has a set exchange rate for real-world money. Much the same will happen in real life, where people are going to use exclusive currencies for one service or provider that represents a “contract” between you and that provider in exchange for something else.
Additionally, the proliferation of multiple currencies will be impossible to lug around if it’s in cash. This means that a mobile wallet is going to figure in this revolution, and it will be a requisite (see the first section above). People will walk around with nine or ten active currencies in their mobile wallets, which they can use to exchange for goods and services.
And as money represents anything of value, these providers will create exclusive currencies in exchange for anything that you and that provider values, such as your personal data, which can be used to empower personalized marketing.
4. Government-Backed Currency Virtualization
Peer-to-peer payments a la bitcoins or Ethereum have gone from a nerd’s exclusive domain to a decent force in the financial markets. And even governments are noticing.
Singapore’s PayNow initiative, for example, is a government-backed electronic payment scheme that transfers money from person to person (via a unique entity number) instead of their bank account. And by the end of 2019, more than 65% of all Singaporean adults have signed up for the service, with a $1 billion transaction volume in mid-2019.
This is dramatically less than cash—at the moment. But it will grow, inevitably, as more countries are seeing the synergy between a central bank and currency virtualization. For example, a central bank can issue a digital currency to make money transfers easy, safe, and cheap and level the playing field for private companies to innovate in. Bitcoin, it seems, is not going to hold the top market share forever.
The Most Valuable Cryptocurrencies 2020
Selling prices of the top 10 cryptocurrencies as of May 14, 2020
Bitcoin Cash: $241.66
Bitcoin SV: $192.77
Source: CoinMarketCapCreated by CompareCamp.com
In addition, currency virtualization also works in tandem with a “money as data” philosophy. No longer will countries run on the most basic unit, such as a cent, but instead can accept payments in even lower increments than what currently exists. A digital-only currency will also be flexible enough to cover for taxation, especially for the mobile workforce, which is even more in demand now due to the COVID-19 pandemic.
The challenge, however, is to put in place a regulatory framework that covers this kind of money. While it’s easy to regulate anything that passes off as a medium of exchange, the main goal is to protect consumers without stifling innovation and enterprise.
5. The Collapse of Brick-and-Mortar
Long enjoying their vaunted position at the top of the financial pyramid, banks are soon going to see their clout diminish. The digital realm of finance and money doesn’t care about the traditional advantages of banks, such as capital.
Experts are weighing in on the imminent demise of banks in the digital space. For example, while banks may continue to issue credit, they will no longer figure as much (or at all) on the payment side of the economy. The benefits that payment gateways offer, such as Alipay, have made it clear that banks are unnecessary in an environment where people can pay for services or commodities without going through a traditional bank. And because people pay nothing to facilitate this payment, no one would look back at a bank that charges for the same thing.
Digital-only banks like Revolut will, instead, replace traditional brick-and-mortar banks. One thing that sets these kinds of banks apart from their older (and arguably elitist) counterparts includes facilitating transactions that are up to 10 times cheaper than a traditional bank. More importantly, however, Revolut (and others of its ilk) are acting more like a technology company than a bank. From the act of logging in to payment, Revolut makes the experience effortless, similar to how you would use any other app.
The current sentiment supports this; 72% of people under 30—which form over half of the world’s population—say they don’t trust traditional banks to be fair and equitable.
6. Open API Banking
While technically not a new trend, open banking is one of the best ways to illustrate how tech will influence—even change–the entire banking industry. The use of application programming interfaces (APIs) will become the norm as traditional banks outsource some of their power to third parties, melded by the use of technologies that empower integration between apps.
Source: Postman State of the API Report
It gets even esoteric when you look at how APIs can be used to their full extent. For example, APIs can be the glue that holds a mobile ecosystem built around a hyper-personalized identity. This consists of data pertaining to your spending habits and preferences, and an app that will conform and “morph” to this identity. AI, powered by natural language processing and machine learning, will be the middleman that automates and transacts for you, bound by future regulations.
While the use of open banking remains a niche that only progressive, forward-thinking young people are taking advantage of, it’s expected to be a major force and a template in the future of money. Open banking, however, shows that money is simply a part of technology and a form of data. The sooner that banks retool themselves to leverage this aspect, the longer they can remain on top of the food chain.
7. Regulating the Regulator
All of those mentioned above will be for naught if the regulatory framework for future money isn’t right for it. The advent of third-party entities that operate beyond the scope of traditional financial regulation worries governments and regulators alike. This becomes clearer day by day as the usage of digital currency catches up to real money.
Some governments are exploring venues that can protect consumers. Blockchain, as a form of distributed ledger technology, is one candidate. This is thanks to blockchain’s natural immutability. And while distributed ledgers are touted to be “trustless,” it still needs a certain amount of trust on the part of the consumer. The consumer must trust that the code is bug-proof; it can’t be meddled with, and that it remains decentralized.
The implication of a fully cashless, digital-only currency also raises some interesting questions, compounded by the rising ubiquity of machine-to-machine transactions. For example, Amazon filed a patent in 2011 for a fully automated smart fridge that detects the amount of goods in your refrigerator. Once the goods fall under a certain threshold, it automatically connects to Amazon and orders—and pays—on your behalf. In this case, under which regulation does this transaction fall under? Is it you? Or is it the machine?
Regulation isn’t just about protecting consumers from fraud and making sure the wheels of finance are well-greased. In the future, regulatory practices should also be more progressive and will involve a lot more stakeholders than just central banks. They should also open a dialog with start-ups and other fintechs and take into account the payment preferences of consumers and that these preferences, no matter what they are, are safe from external, malicious forces.
The Future of Money
People have been crying foul over the unfair practices in banks and financial institutions for decades, if not centuries. And while a lot of political upheavals have come and gone in response, banks have always stood impregnable. It’s clear, however, that banks aren’t the enemy at all. How we think of money is.
With the traditional role of money about to be changed, one thing is for sure. Ten or 30 years down the line, saying “dolla dolla bill y’all” may not even make sense at all.
- Federal Reserve Bank of San Francisco: “2019 Findings from the Diary of Consumer Payment Choice”
- Bloomberg Opinion: “Bitcoin Isn’t the Future of Money”
- Creditcards.com: “The history of credit cards”
- Reuters: “False claim: Bill Gates planning to use microchip implants to fight coronavirus”
- Federal Reserve System
- IBS Intelligence: “Survey predicts death of cash by 2030”
- Official website of Sweden: “Sweden—The First Cashless Society?”
- The Guardian: “China starts major trial of state-run digital currency”
- Cointelegraph.com: “What Are Smart Contracts? Guide For Beginners”
- The Straits Times: “Parliament: More than six in 10 Singaporeans signed up for PayNow, service has 2.8 million registrations”
- LinkedIn: “Banks are underestimating Revolut’s product advantage”
- CNBC: “After the crisis, a new generation puts its trust in tech over traditional banks”
- Very: “Blockchain Explained: How Does Immutability Work?”
- The Spoon: “Is Amazon Considering Making A Smart Fridge? Probably Not (But Maybe)”