How Could Digital Currency Work?

The Bank of England and the UK Treasury have announced a Central Bank Digital Currency (CBDC) Taskforce to coordinate the exploration of a potential British CBDC. But how could a digital Pound actually work? As it happens, this is something that Consult Hyperion knows rather a lot about. Apart from our work on the first British central bank digital currency (Mondex) back in the 1990s, our work on the first population-scale mobile money scheme (M-PESA) in the 2000s and our work on the most transformational contactless payment roll-out (Transport for London) in the 2010s, our practical experience across implementation platforms means that we understand the architectural options better than anyone.

Ruby reflections, 40 years of technology change at work

silver and gold coins

At this time of year my colleague, Dave Birch looks forward, his annual “Live Five” started as a bit of fun, but over the years has become a thought provoking look at what might impact our industry in the coming year, if you haven’t read it yet, please follow this link.

As we come to the holiday season, we know that we will be bombarded with reviews of 2020 on television, in our newspapers and online. A conversation with some colleagues about how long they had worked in the payments industry, prompted my own review when I realised that on the 8th December, I clocked up 40 years in the industry, how technology has changed our lives in that time.

Good night, cash

Last year I had the opportunity to hear Henning Jensen, who was there at the very beginning, talk about the history of the Danish Dankort national debit scheme at and event held in Copenhagen to mark the publication of his book “Historien om Dankort”. If you are not familiar with it, all you need to know is that Dankort has been fantastically successful. It is used absolutely everywhere in Denmark and for absolutely everything. There is no reason to use in Denmark. Ever.

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I’ve been to Denmark a fair few times in the last few years (including an expedition to Roskilde) and I cannot remember the last time I ever even saw cash in the country, let alone used it.

Nocash danish train  1

To recap, then. There is no reason to use cash in Denmark and nobody does. However, for historical reasons presumably going back to the time of the North Sea Empire, Danish Law forces retailers to accept it. It looks as if this is about to change. In what many cash supporters would undoubtedly see as the thin end of an inevitable wedge, the law is about to allow shops an exemption.

Since the introduction of the Dankort in 1984, shops have been required to accept cash if the customer insists… Now a majority in Parliament… has agreed to propose legislation that would allow shops to decide for themselves whether they will accept cash payments between 10 pm and 6 am.  The aim, according to those behind the law change, is to protect stores against robberies and provide security for employees.

From Danish shops could soon start rejecting cash payments at night – The Post

I’d be surprised if anyone notices if cash goes to bed at night. I’ve never met a Dane without a Dankort. In fact, sometimes I wish I had one.

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What might the be the likely high-level impact of this move? Well, a final push to ditch Danegeld for Dankort will be good for everyone. Cash costs society far more than debit cards and we all end up paying for that because the cross-subsidy from efficient electronic payments to inefficient cash payments is substantial. People like me who put everything on cards are still paying for ATMs, security guards, bank robberies and rascals blowing up Bexhill railway station.

the total social cost of payments in Denmark is calculated at 0.55% of GDP, of which 0.35% is attributed to cash and 0.15% to the domestic PIN debit scheme.

From Why would some retailers want to get rid of cash? Because of the others who don’t | Consult Hyperion

I hope Denmark pushes ahead and shows us the way. It should be a matter of course that we don’t use cash at night in polite society (except for buying cocaine and such like).

Retailers and cashlessness (In more ways than one)

British Airways have instituted a new policy of annoying customers like me by making them pay for coffee. Although, to be fair, it was Marks & Spencer coffee and it was much nicer than the usual BA coffee. Naturally, as is the case for most forward-looking of retailers, they do not take cash, so I paid with one of the many cards about my person. As it now takes them ten times longer to serve the coffee, I took pity on the cabin crew and decided against my experiment of buying with contact, stripe, contactless and Apple Pay to see how the different media worked in the flight, and I just opted for a single stripe-based case study.

Avios are the New Money

BA are not alone in opting out of the overheads, annoyances and inconveniences of the industrial age cash economy. Perry Kramer, vice president and practice lead at consultant Boston Retail Partners, contends that as many as four-fifths of (US, I presume) retailers are already “largely cashless”.

“Retailers don’t really want to be banks. It’s not their sweet spot,” he says. “It is much less expensive to process credit and debit than it is cash, because cash has a lot of labor involved.”

From Cashing In or Cashing Out? | National Retail Federation

Still, it’s a big step to go from “largely cashless” to “cashless”, as many retailers are doing. You can see the attraction. If you are largely cashless, you still need a cash register, you still need to reconcile at the end of the day and you still have to go to the night safe on the way home. To stop all of this unproductive nonsense you need to stop cash altogether. If you do, the benefits are not limited to safety, security and a quicker trip home.

The company says that employees can perform 5% to 15% more transactions every hour when they don’t have to handle money.

From Sweetgreen Is Going Fully Cashless In 2017 | Fast Company | Business + Innovation

There’s a bigger context to the retailers’ moves away from cash, though, and that’s the moves away from POS altogether. As the payment becomes invisible, so does the card reader.

The move away from cash might also steer more people onto the Sweetgreen app. Over the last year, app use has grown 95%, says the company. Roughly a third of the business is run through the app

From Sweetgreen Is Going Fully Cashless In 2017 | Fast Company | Business + Innovation

I’ve never been to Sweetgreen, which I understand provides salad-based offers to busy office workers, but I will make the effort to reward their futuristic stance next time I am near one and between proper meals. A great company, no doubt, but when it comes to payments, I do not see their trajectory as unrepresentative at all. Apps and chat are steadily encroaching. 

Domino’s Pizza, which launched a “zero-clicks” pizza ordering app earlier this year. In the past, the company has baked ordering into Facebook Messenger, Twitter, Siri, Amazon’s Echo, Google Home, smart televisions, and even Ford Sync. In the third quarter this year, Domino’s revenue grew 16.9% year-over-year.

From Sweetgreen Is Going Fully Cashless In 2017 | Fast Company | Business + Innovation

Back to BA. As I said earlier, they don’t take cash so I paid by card. What I didn’t mention was that the card was a BA Executive Club card and that the currency was Avios, their “rewards” points. Interestingly, when I last paid for something on board with a payment card I had to through the rigmarole of showing my passport as well as signing the transaction. But with my Gold card it was just swipe and go. Quick as you like.

Avios are the New Money


At the time of writing (three days later), these 300 Avios have yet to be deducted from my account, so I suspect the system may not be real-time. I will see if I can double-spend the Avios on my next flight and then write to BA to suggest they consider the blockchain for future implementations. Meanwhile, I will use the remaining gazillion Avios to take my wife on a lovely trip to her home town this summer. Let’s go book a flight right now!

Ba avail

Oh well. I will buy her a coffee instead.

Cash, CHF and chuffing hell there’s a $1000 bill

This time last year there were approximately £70.5 billion in notes and coins “in circulation” in the UK. Now, there are approximately £74.5 billion in notes and coins “in circulation” in the UK. That’s a rise of 5.7% in a year when the economy grew by about 1.8% and the use of cash in retail transactions (retail spending grew 5.2%) was overtaken by the use of electronic payments. Cash is now only 48% of transactions, and the UK Payments Council say that this will fall by another third over the next decade.

Back to the same old question again then. What is this cash being used for?

Here’s a clue. A fifth of the currency “in circulation” is in the form of £50 notes, which you never see in polite society. As we have discussed before, only about a quarter of the Bank of England’s notes are used for transactional purposes so these £50 notes must be disproportionately concentrated in the non-transactional (i.e., largely criminal) uses. As everywhere else, high-value banknotes are a major cause for concern.

The EU Commission on Tuesday will pledge to investigate the suspiciously high number of the notes in circulation in the eurozone as part of a plan to choke-off financing for terrorists in the wake of November’s attacks in Paris.

From EU to probe €500 notes’ links to terrorism –

Back to another obvious question then. Why not make crime, terrorism, drug dealing, money laundering and bribing corrupt politicians marginally less convenient and marginally more expensive by getting rid of those high-value banknotes?  It is not only crazed electronic money maniacs who think this is right path to take, by the way. This kind of thinking is beginning to percolate up to the higher echelons of the financial establishment.

Mario Draghi, European Central Bank president, told the European Parliament on Monday that the matter was being studied by the central bank and that no decisions had been taken yet. “We want to make changes,” he said, adding that “we are determined not to make seigniorage a comfort for criminals.”

From EU to probe €500 notes’ links to terrorism –

What does he mean by this? Well, the “seigniorage” is the money earned by the ECB on the note issue. They sell €500 notes that cost them 10 cents (or whatever) to make. The €499.90 profit has to be invested in safe securities (government bonds, basically) and the interest earned on those securities is divided up between the eurozone members according to some arcane formula. The upshot of it all is that the stack of €500 notes underneath the Mafia boss’ pillow are earning interest for national governments. The governments are, in a very real sense, living off of the proceeds of crime. A no brainer then! Since this is clearly morally and ethically wrong, central banks are presumably wholly against it. Well, sort of. But you can see the problem that Mario faces if he does the right thing and cans the €100, €200 and €500 notes…

If we are right, the Euro will weaken, primarily against the USD and the CHF. The USD is the most liquid currency and we would expect it to capture a large share of the drop in the demand for the Euro as a store of value. However, the CHF could also benefit, having the largest note denomination in G10 economies.

From Kill the €500 note, weaken the euro | FT Alphaville

Ah, the CHF. Sooner or later the law-abiding nations of the world will have to institute sanctions against the Swiss for delivering convenience to the criminal and manna to the money launderers. I’ve just been in Switzerland and I never even saw a CHF note or coin: I used cards everywhere, and as far as I could see so did everyone else, except for the Arab gentleman who checked into the hotel in front of me and paid up front with three €500 notes. As I never see these in wild, I tried to grab a photograph of the check-in clerk running these through an anti-counterfeiting device that she had on the counter but she was too quick for me. The fact she had the device right there on the desk leads me to suspect that she sees more €500 notes than I do.

Swiss cash circulating is about five times that of Canada, and twice that of the euro area. At the same time, the rate of card use is among the lowest in western Europe — only a third of Sweden’s level and less than half that of the U.K.

From Rolex Buyers Needn’t Worry as Swiss Put Limit on Anonymous Cash – Bloomberg

The €500 isn’t the biggest note that desk clerk sees though. Switzerland has a CHF1,000. That’s right: a banknote worth $1,000. And you can spend it, too. Mind you, the Swiss have been cracking down: since January, you have had to show ID (how they verify the ID is beyond me) for cash transactions of $100,000 or more.

[then-Finance Minister Eveline Widmer-Schlumpf] spoke during a debate on an anti-money laundering law that came into force this year, establishing a ceiling of 100,000 francs on anonymous cash transactions. Charles Goodhart, a former Bank of England policy maker, said in December that the limit was so high that it could only be described as a joke.

From Cash Is Still King in Switzerland – Bloomberg

Am I taking crazy pills? The Swiss National Bank, the European Central Bank and the Federal Reserve should not be competing to be the currency of choice for Mexican drug lords, Albanian people traffickers and Syrian terrorist groups. Surely there is a moral dimension to this: all three should agree to reduce the maximum value of the circulating medium of exchange to EUR 50, USD 50 and CHF 50 and if they are not prepared to do this then the heads of the respective central banks should be prosecuted for conspiracy to support money laundering. It is time to get tough with these guys.

Developing services that change people’s lives

One of the most exciting things about working here at Consult Hyperion is that you are involved in the design and delivery of services which have a huge impact on people’s lives. My family moaned when I asked the taxi driver that took us from the airport into Nairobi whether he used M-PESA. However they were soon having similar conversations as they realised how important the service is to every Kenyan they met. More recently they have accused me of being responsible for “card clash” on the London Underground and have resorted to buying shielded wallets to ensure that TfL only take money from the Oyster Cards that I fund!

Sat here as I am at the AidEx conference in Brussels, surrounded by the great and good of the Humanitarian Aid community, I feel that Consult Hyperion is on the verge of delivering yet another life changing service.

The refugee issue is a regular topic of discussion across all media. Most stories focus on the plight of the individuals walking across Eastern Europe. However there is a growing awareness of the impact of so many refugees on the local economy. For example Alex Forsyth, reporting for the BBC’s From Our Own Correspondent, highlighted that the holiday season in Lesbos has been extended, as people descend on the island to help the refugees arriving by sea.

The conversations in Brussels have focused on the need to provide aid to the refugees in the form of cash-based payments, rather than physical goods, such as rice or tents. The argument goes that if the refugees have the funds to buy the goods, then the entrepreneurs in the host country will invest in the distribution channels to ensure that the goods that the refugees need are where they want to buy them.

The trouble with cash is that it has a tendency to evaporate, i.e. not all the intended funds reach the recipient, even if it is transported into the region in 40 foot steel shipping containers on the back of a truck.  As we discovered in Nigeria the principal alternative, paper vouchers, have some major disadvantages. They are difficult to manage in large numbers; they must be printed by specialist printers; they have to be ordered significantly in advance; they have to be the right value to allow the refugee to spend all the funds in one visit to the merchant, even when the local currency is devaluing; the merchant and the agency running the scheme have to reconcile the vouchers before the funds can be provided to the merchant; and the used vouchers have to be stored in case of dispute.

Recognising this, there is growing support within the Humanitarian Aid community for the use of Cash Based Transfers (CBTs), essentially smartcard based e-money schemes, which can be rapidly established in times of crisis and in which the reconciliation process can be done automatically in the Cloud. The trials to date have focused on prepaid card schemes. But these also have significant disadvantages, since they require access to expensive payment terminals designed to operate in clean retail environments typically found in urban areas, whilst creating a huge problem with cash liquidity in the local community.

Groups of representatives from the Humanitarian Aid community under the auspices of Electronic Cash Transfer Learning Action Network (ELAN), the Cash Learning Partnership (CALP) and the High Level Panel on Humanitarian Cash Transfers, sponsored by DFID, have analysed these trials and documented their requirements for CBT solutions.

Reviewing these with the retail payment experts within Consult Hyperion it became apparent we had already developed many of the building blocks required to deliver the Humanitarian Aid community’s ideal CBT solution:-

•  A proven, robust and scalable beneficiary registration and voucher distribution service, The TAP Platform, which was used to register in excess of 500,000 subsistence farmers in Nigeria’s northern states to the Ministry of Agriculture and Rural Development’s GES voucher scheme. The transparent nature of the information stored within the system allowed us to remotely identify incorrect or fraudulent activity within the system and initiate remedial action accordingly.

•  Mobile applications which can be used to complete transactions initiated by tapping a smartcard to the merchant’s mobile phone, replacing the payment terminals and removing the need for physical cash.

•  AML/KYC compliance solutions developed for use in regions where regulatory supervision is limited, such as Somalia.

•  A group of ethical hackers who could validate the security of the end to end service.

The result is TeMS (the TAP e-Money Service), which we are launching at the AidEx conference. Our market research tells us that TeMS will make it easier for the Humanitarian Organisations to rapidly and securely deliver cash payments in areas with limited or no communications or electricity.

But there is a lot more behind that simple statement. The local community will be more inclined to welcome the recipients as they will bring income into the region. The teams delivering the aid will be able to focus on the financial awareness of the merchants and recipients, helping them to learn how to plan and save, rather than spending time reconciling paper vouchers or ensuring that there is sufficient cash in the region. Donors will have access to detailed information about who is receiving what aid and where, allowing them to respond to the growing demand for value for money information from their local media.

My hope is that my daughter, who is planning to spend time within the Humanitarian Aid Community when she graduates from medical school, will again be able to ask the people she is working with how a product Consult Hyperion developed has changed their lives.

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