The future of money

Since the beginning days of the pandemic there's been a lot of talk in the finance industry about digital migration, fintechs replacing banks and cash being obsolete, but how much is fact and how much is fiction? Will there come a time when cash is no longer a viable payment choice?

"For the foreseeable future, cash will continue to have a strong presence in the marketplace. Its ease of use and

William Budde, VP, Product Marketing, Hyosung

ubiquity continue to make it a preferred payment method for small transactions across all demographics," William Budde, Vice President, Product Marketing for Hyosung said in an interview with ATM Marketplace. "There are still a few areas of our economy that rely almost exclusively on cash – things like flea markets, tipping, and garage sales – that, while small, are also firmly embedded parts of our collective culture. Further, over 20% of U.S. households are unbanked or underbanked and continue to rely on cash as a primary form of payment for transactions of all sizes.

Q: What do you think in terms of industry and environment will have the biggest effect on the future of money?

A: The shift toward digital-first experiences for consumers, enabling consumers to use connected devices of all kinds (from televisions to refrigerators) to make purchases, will require companies to reinvent the way they interact with their customers. Banks will need to innovate in both the products they offer and the customer experiences they deliver. They will need to compete with both large technology companies that begin offering services in the financial space and new fintech companies without the traditional banking industry structure, resulting in a pretty drastic transformation of the way customers engage with financial products.

Q: What should companies prepare for now, in regards to preparing for the future?

A: Customers expect their interactions to be frictionless. Companies should be focused on continuing to remove friction from their purchase and service experiences. Specifically, customer choice is a foundational pillar of the U.S. market, and that includes choice of payment option. Creating an environment that provides customers the options they want, in a safe and secure environment, that is easy to execute – that's what companies will need to do in order to win customer loyalty. And since cash is not disappearing, companies that invest in ways to efficiently hold, handle, process, and transport cash will be at an operational advantage.

Q: How will banks/credit unions/financial institutions need to pivot to meet the future needs of customers?

A: Banks and credit unions already provide a bridge between the digital and physical financial world for customers. These financial institutions will need to continue to innovate to stay ahead of emerging competitors by offering customers new and valuable ways to manage their overall financial lives. Banks and credit unions have an inherent advantage in the financial services space with their built-in infrastructures that meet customer physical fulfillment needs, and expanding the physical fulfillment capabilities to as close to "always open" availability as possible will be a key in continuing to meet customers' evolving expectations.

Furthermore, about 20% of U.S. adults do not have a smartphone – developing ways to extend the advantages of digital-first banking capabilities in innovative ways to people without smartphones will be important in increasing the accessibility of the overall payment ecosystem to all consumers. Continuing to innovate around the digital needs customers will have, as well as making the integration of a customer's financial needs as seamless as possible, will be core to the success of financial institutions in the future.

Q: What new innovation or technology could change the future of money and how will it be able to do so?

A: Innovation in new payment methods and digital-first customer banking experiences have transformed the banking industry and have had a profound effect on the way consumers purchase goods and services, while also making banks more efficient in the way they deliver services to customers.

Cash has still maintained a high level of popularity as a payment method due to its inherent benefits (anonymity, ubiquity, inclusiveness, ease of use, etc.), but still requires significant manual effort and expense for financial institutions to process. Innovation that drives down the operational load of processing cash will have a huge impact on the way banks operate. Further, innovation that enhances the cohesiveness of the overall payment ecosystem so that all forms of payment can coexist and complement each other will drive value and convenience for customers, and will blur the lines between types of payment.

Q: What are your thoughts on coins, considering the shortage we experienced during COVID? Could that happen to paper money as well?

A:It wasn't really a shortage of coins that was the issue, it was that when businesses closed and people stayed home in March and April, the coins that were in existence stopped circulating as they normally would. This left significantly more coins than normal in people's homes (and nightstands and car cupholders). Due to the longevity of coins, third party processors and retail activity make up the vast majority of coin demand (over 80%), with the Fed contributing less than 20% of needed coin through newly-minted coinage. When the third-party processor and retail avenues dried up due to lack of circulation, the Fed was unable to increase manufacturing by such a large amount in such a short period of time. By contrast, paper currency has a considerably shorter life than coins, and the supply chain relies much more on the Fed than on third-party processors, so the Fed is in a much better position to meet paper currency demand when needed.

Obviously, we should never say "never"; it's certainly possible that a shortage of paper money could occur, but with higher production capacity and significantly higher denomination amounts, the surrounding circumstances would have to be extremely severe. Really, another of cash's inherent advantages is its sturdiness and resilience to the types of issues that could cause "outages" with other forms of payment.

Q: How strong a role will contactless, touchless payments play moving forward into the future?

A: The ability to pay in a contactless manner has already become pretty common, though it is still far from ubiquitous. The actual contactless interaction is more of a customer experience mode than it is a payment method, as contactless can be built into digital wallets in mobile phones, key-fobs, and even cards themselves, and can be enabled at the point of sale, at ATMs, at vending machines, and even at mass transit boarding. The contactless interaction delivers the payment method (the card, the digital wallet, etc.) without requiring the actual touch of a card in a reader.

While contactless acceptance has begun to become more common, it is not yet noticeably simpler and quicker for a customer than a traditional card dip, which means users still tend to skew toward early adopters. As the interaction mode continues to evolve and it becomes simpler for a customer to utilize the contactless interaction than a traditional card dip, it will proliferate from a usage perspective. Also, as I mentioned, it is still far from ubiquitous, and not knowing whether it will be available is, in itself, additional friction. Contactless interactions will have to become nearly universally available in order to become a primary interaction mode. That will require investment from retailers that have not yet implemented it, so in addition to ease of use for the consumer, there has to be a net benefit for the retailer.

Q: From a global perspective, where do you see the future of money going and why?

A: The removal of cross-border friction will be an important step in bringing more inclusion to the global economy. Money is a big part of a country's culture, and eliminating that cultural identity will not be a popularly chosen path. Innovations that maintain that cultural link while bringing individual country's economies closer together will be a big part of money's future. A big part of friction removal in this area is transparency around exchange rates and fees – that would allow customers to transact across borders with complete confidence in the integrity of the data around the transaction.

Q: How is your company preparing for the future of money?

A: At Hyosung, we spend a great deal of focus on developing technology that solves problems for financial institutions and retailers as well as their customers. We make a significant investment in R&D and we are collaborative partners with financial institutions in developing new technology and processes to meet the evolving needs of the industry. Developing new ways to make handling and processing cash more efficient and effective for both financial institutions and retail establishments is a significant area of focus for us, and one where we feel like we are a leader and innovator. We have also been a pioneer in integrating Bitcoin access into traditional ATMs, and continually look for additional ways to bridge the digital and physical financial space.

Q: What do you think will be the biggest challenges ahead for the ATM industry in terms of the future? What can offer this industry the biggest benefits?

A: ATMs are already a key tool that banks use to bridge the digital and physical financial worlds for their customers, but as with all products and services, they can't stay stagnant. As technology evolves, customers will expect technology advances to be integrated into the experiences they have with all businesses with which they interact, and ATMs are certainly no exception – integrating new experience and interaction technologies will be important for any technology offering to remain an integral part of their industry.

As customers' everyday lives become more digital, security will become an even higher priority for customers. ATMs already excel at securely authenticating customers, but it will be important to continue to evolve and strengthen security, and make the strength of that security evident to customers. Taking advantage of that already-strong security, broadening available services will be an important growth vector in the future.