Standards – More Speed Needed

Pretty well every conference has a topical subject or theme. The prevalent one at ICCOS Americas in Miami in March was industry standards or, to phrase it better, the lack of them (and the corollary, the need for them!). The theme featured most strongly in Roland Costa’s paper ‘A Journey into the Next Generation – The Fed’s Perspective’ but was prevalent throughout the conference. And rightly so.

What everyone in the currency industry should by now have realised is that we are fighting for the future of cash. There have always been alternatives, so we all know the major impact of change and should recognise the driver for new forms of payment is convenience. The point is, even going right back to the very first payment method – barter – our industry really is not just cash, it is payment systems, and we are just a part of it. And now, after centuries of dominating payment systems, cash finds itself under greater pressure than ever before.

During the last century, the first major threat came from cheques, followed by credit cards. At the beginning of this century it was debit cards, electronic banking and e-commerce.  Thus far (with the exception of the unfortunate cheque), such changes have added to the overall payments mix, rather than squeezing the alternatives out. Cash has undoubtedly lost out in the sense that it has declined as a percentage of all payments, although this has been more than offset by the expansion of money overall. In real terms, therefore, cash has continued to grow – in developed and developing economies alike, and continues to remain prime in the latter. But for how long?

Predictions about the demise of cash, which have been with us for years if not decades, have not (yet) materialised. This is primarily because of the specific attributes of cash (small payments, person-to-person payments, privacy, speed, reliability and so on), the non-availability of alternatives in certain parts of the world and the fact that those alternatives in any case have tended be at the high-value end of the payment spectrum, leaving cash as the preferred means for low value transactions.

But there are now two potential ‘killer payment applications’, the first contactless cards and the second the mobile phone. Both can have money pre-loaded and are ideal for micro transactions, and both are fast. But the mobile phone can also be used for large value payments, and for person-to-person transactions too, bypassing normal payment channels.

The key thing about the mobile phone technology in particular is not so much how it’s used, but by whom and where. And the answer is in developing countries where large sections of the populations are unbanked, where the only payment choice that exists – cash – is sometimes neither particularly convenient nor accessible (nor even safe). And where, regardless of their financial circumstances, just about everyone has a mobile phone.

The figures are staggering. 90% of the world’s population had access to mobile networks in 2011, and it is predicted that, in Africa, for example, the continent will very shortly cross the threshold of mobile phone use, with one phone for every adult (if indeed it hasn’t already). A similar pattern is emerging in other parts of the world where populations are growing the fastest and conventional payment networks are being leapfrogged by the new technology.

The progress or advent of new alternative payment systems is unstoppable. But what is essential is that we give cash all the advantages we can to keep it competitive, convenient, reliable and cost-effective for all parties in the face of such technologies. And this is where standards can play a role.

Standards are created to generate commonalities in performance, function and quality between multiple technologies and suppliers operating in the same environment. They are best devised by those suppliers and, to a certain extent, require that competitive differences are put aside in order to work for the ‘common good’.

This, however, can too often be seen as contrary to the principle that companies succeed by creating points of differentiation in order to secure a competitive advantage – particularly if this advantage is technology-based (indeed, it is this that drives technological innovation in the first place). And it is these points of differentiation – whether they be in systems or products – that are viewed as antithetical to the commonality that standards require. But standards do not rule out product or service differentiation – they just enable an efficient industry, with the mobile phone industry providing a perfect example.

So, for cash to succeed in the future, all those with a vested interest must put aside old strategies of restrictive practices and instead seek to cooperate to strengthen the cash industry as a whole.

A start has been made – by some banknote suppliers sharing IP in security features, by the coin industry working together to develop its own standards for designs and features that work optimally in coin-handling machines, and by the move amongst some in the cash handling sector towards interoperability and common interfaces (of which Costa spoke) to enable multi-vendor systems to be deployed.

But this needs to happen more quickly – the rate at which new technologies are being developed and adopted in the payments field is becoming ever faster, and time is not on our side. The cash processing industry, central and commercial  banks and all other industry participants need to work together more closely and with more speed -creating practices and standards that will revolutionise the efficiency of the currency industry if it is to survive in any volume as a choice of payment in the future.