Going contactless

Jonathan Wright
Jonathan Wright
Fidelity Personal Investing13 July 2017

Is cash still king? Not necessarily. For the first time debit and credit cards now account for more than half of all purchases in the UK according to new figures from the British Retail Consortium.

The growing use of contactless cards has contributed greatly to this. Greeted with much caution when they were launched ten years ago, contactless cards are increasingly replacing cash at the till and now account for about a third of all card purchases.

In its latest annual payments survey the British Retail Consortium said debit, credit and charge cards were “increasingly displacing cash for lower-value payments”.

With a maximum limit of £30 per transaction it is in the smaller payments end of the market that cashless payments have gained the most ground. It is easy to see why. For consumers it means no more worrying about having the correct change. It also means fewer coins jangling in your pocket and fewer trips to the nearest ATM.

For retailers it means faster transactions, so fewer queues at the tills and fewer security issues with counting and depositing cash at a bank.

From its early uses in coffee shops and supermarkets the contactless payment revolution is spreading fast. This summer even the Church of England will be trialling contactless payments for donations in 40 churches alongside the traditional collection plate.

Banks and the government are also keen we go cashless. It’s much easier and cheaper for banks if branches and ATMs can be phased out. For governments it means payments are more traceable and therefore more taxable.

The Taylor review published this week which looks at modern working practices, has focused a lot on the ‘gig’ economy and the protection and rights of those working flexibly. Maike Currie covers this in more detail here.

The review also focuses on what it terms ‘the hidden economy’ and the importance of self-employed people paying the right taxes “so that the country can afford to fund the NHS, the police and other national services”. According to an HMRC consultation last year the hidden economy cost as much as £6.2bn to the UK in 2013/14 - 18% of the total UK tax gap.

The report states that the move towards more digital transactions will help the self-employed keep track of their receipts and invoices over the year but “also provide a clearer audit trail for HMRC to examine should an investigation be undertaken.”

Whether this means cleaners and babysitters will be forced to get payment terminals is yet to be seen, but easy-to-use phone-based payment apps aimed at the informal economy will become more commonplace I’m sure.

One country that is moving rapidly to becoming cashless is India. Last November Prime Minister Narendra Modi announced in a surprise television address that all 500 and 1,000 rupee banknotes would be invalid overnight giving people 50 days to deposit the demonetised notes in bank accounts.

As a result this demonetisation campaign has pushed millions of Indians to the banks and new forms of digital payments. Before the campaign cash accounted for upwards of 95% of all transactions, 90% of vendors didn’t have card readers or the means of accepting electronic payments and 85% of the workers were paid in cash.

Since demonetisation, over $80 billion has flowed into the banking system and the Nifty Bank Index which represents the 12 biggest banks in India is up over 30% this year. For the Indian government this means more money has moved out of the hidden economy while telecommunication, banking and technology services in the country have all benefited.

HDFC a leading bank in India which features in the top 10 holdings of the Fidelity Emerging Markets Fund and Henderson Emerging Market Opportunities Fund is riding this wave and investing heavily in technology. Currently 81% of their customer transactions take place over digital channels and the company believes Artificial Intelligence (AI) will play an increasingly more important role.

Earlier this year the bank was the first in India to introduce a “humanoid” branch assistant. Despite the multiple ways you can transact with the bank digitally, if you do still need to visit a branch, the Intelligent Robotic Assistant or ‘Ira’ for short will greet you, display a list of available services and then accompany you to the relevant counter.

All you have to do is explain why you need that loan.

Check out the Select 50 for recommended funds in Asia and emerging markets.

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