[ad_1]
My earliest memory of a financial transaction is shaking coins out of my piggy bank, walking to the newsagents and exchanging them for a copy of Smash Hits magazine. How times have changed.
In the decades since I stopped receiving pocket money, we’ve moved from cash to cards to mobile payments; swiping, tapping and double-clicking to pay — or just waving a smartwatch.
The speed of the electronic payments revolution raises the question of why a “digital pound” is even needed. But this hasn’t stopped the Bank of England and UK Treasury from launching a consultation to explore its potential.
If they go ahead, the earliest we’re likely to be able to spend a digital pound will be 2030, but we need some answers before then. The technology offers potential profits for non-bank companies accessing even more of our spending data — but in return, could it take some of the faff out of finance?
Concerns about privacy and security are valid, but a digital currency issued by the Bank of England strikes me as being more robust and trustworthy than, for example, one issued by a social media platform. Central banks are right to try and get ahead of the curve. They could only look on in horror as investors piled into crypto; we don’t want a repeat of these failings.
Some have dubbed it “Britcoin” but a digital pound would be more akin to a stablecoin, pegged to sterling with the same value as a minted coin. We’d hold our digital pounds in virtual wallets operated by regulated third parties with access to central bank infrastructure. These could include not only banks but also the tech companies and crypto players who have prompted this pre-emptive strike — ensuring adequate consumer protection will therefore be vital.
Spending digital pounds on our phones won’t necessarily feel any different, but it’s tantalising to speculate on the features that different wallet providers could develop as they compete to attract consumers and peer at our spending habits.
In a speech this week, BoE deputy governor Sir Jon Cunliffe coined the term “programmable money” to describe how payments could be configured in the future to interact with digital processes.
He spoke of “smart contracts” where linked transactions could be automatic, providing certain preconditions were met, such as instantaneous foreign currency exchange. This could be even easier if other central banks around the world adopt their own digital currencies. Assuming the digital efficiencies get passed on, rip-off rates for spending or sending money abroad could become a thing of the past.
“Similarly, if a digital pound can streamline the payments infrastructure behind card payments, the fees merchants are charged could come down, making it easier and cheaper for them to process small payments,” says Laith Khalaf, head of investment analysis at AJ Bell.
If you’ve ever struggled to find a corner shop that will let your child buy 50p worth of sweets using their gohenry pre-paid pocket money card, this could appeal. But smaller processing costs pave the way for micropayments, which could challenge the subscription-based business model of industries from streaming to publishing.
Khalaf predicts widespread disruption for traditional banks. Will they invest in digital wallets, or lose custom to those that do? It could spell the end of free banking if lost profits means they have to charge for basic services.
But the ability to program our money could also nudge us into better financial habits. Freelancers paid in digital pounds might automatically siphon some off into a savings account to meet their eventual tax bill, or seamlessly receive tax refunds due on their pension contributions. If retailers linked loyalty schemes to a digital wallet, shoppers could be incentivised with cashback rather than fiddly vouchers.
The real question, according to Neil Saunders, veteran retail analyst at GlobalData, is consumer trust: “Would you have your salary and full financial transactions going through a digital wallet?”
This is an area where UK digital banking apps are still struggling. But millions are warming to the benefits of Open Banking, granting FCA-authorised apps consent to probe their spending habits. Take Snoop, which scans your accounts and might suggest you cancel forgotten subscriptions, switch broadband provider or get car insurance quotes in time to lock in a cheaper premium. This saves you money; the app makes it by sharing aggregated spending trends.
If digital wallets live on our phones, says Saunders, it raises the possibility of combining spending insights with location, making our data even more valuable — assuming we feel comfortable and sufficiently rewarded for sharing it.
Consumers need to be alive to the value of what they’re giving away. Let’s not be short-changed as digital currencies transform our future transactions.
Claer Barrett is the FT’s consumer editor and the author of ‘What They Don’t Teach You About Money’. claer.barrett@ft.com
[ad_2]
Source link
