The Future of Fintech: Can Money Disappear?

Frequently, it is stated that the epidemic has served as a push for the creation of digital payment systems. But this is not the main factor of transformation, which in the coming years may lead not only to the rejection of cash but also to a rethinking of the very idea of monetary units.

Marginalization of Cash

As non-cash payments grew more prevalent, the inadequacies of cash became more and more apparent. They can be stolen, they can be lost, and they are resistant to a wide range of germs that cause a wide range of illnesses. Because cash does not accrue interest, it is not used to build a credit history, and it is not used to credit purchases with a cashback reward programme.

Young people who have grown up with digital financial goods from an early age are more acutely aware of these flaws than others, and therefore "vote with their feet" by consciously reducing their reliance on cash transactions.

Consumers of a certain age have become accustomed to the drawbacks of cash, but there is one economic actor that is not only interested in doing away with currency but also has the genuine capacity to bring about such a revolution: the government. The major drawback of cash, in the eyes of the authorities, is the fact that it might remain anonymous. In the illicit economy, bags full of cash and speedy settlements in unlawful transactions are the only means of doing business.

All around the world, there is a process of marginalisation taking place with regard to cash. They are transformed into a characteristic of crime. The European Central Banks have ceased printing 500 euro notes, which are in high demand for massive illicit financial transactions. This is an attempt to at least partially fix the problem.

Digital currencies of central banks

Another significant source of pressure is the use of Central Bank Digital Currencies (CBDCs). They are intended to take the place of currency in the calculations of citizens across the board in every area of the economy. There are several essential characteristics of these coins, including their total control by the Central Bank over their issuance and transactional activity as well as the difficulty of cashing them out.

At least 80 per cent of the world's central banks are involved in the development of CBDCs. Starting in the first quarter of 2022, the Russian Central Bank wants to execute a test launch of the digital ruble. The full adoption of the local digital currency is expected to take place by the end of 2030.

The Central Bank of China's policies can be seen as a model of best practise in this regard. He has already undertaken "field" testing on the country's residents. He hopes to continue this work. The initiative drew the participation of more than 100 thousand persons. The country aims to undertake another test launch the following year; this time, visitors to the 2022 Winter Olympics will be able to make use of the digital yuan in the process. As a result, the move to digital currencies on a worldwide scale is just a matter of time.

Financial identity

A significant barrier to a large number of individuals making the shift to non-cash payments is their inability to have access to financial products because they are unable to prove their identification in a sufficient quantity to enable banks to provide banking services. These individuals are located outside of the global economy - in a grey region where cash is the rule rather than the exception.

As a result of this issue, the phrase "financial identity" is becoming increasingly popular among people. A consumer image may be created even if the customer does not have a credit history, and mobile providers can assist with this.

For smartphone owners in Asia and Africa, there are several fintech businesses in this sector that give access to payments as well as credit opportunities through their mobile devices. Financial Identity as a Service is a new idea for the sector that is gradually emerging as a result of the breadth of services they offer (FiDaaS). Based on the examination of data from mobile networks, it may be thought of as a form of credit scoring. 

Based on research conducted by Oxford Economics, financial data-as-a-service offerings implemented in Asia and Latin America alone will contribute at least $250 billion to global GDP and attract at least 95 million new users to digital financial products.

Investments instead of money

It is possible to have a better understanding of how antiquated currency is by listening to the views of Matt Harris, a well-known fintech investor and partner at Bain Capital Ventures. The author envisions a future in which all financial products will no longer be viewed as independent entities, but would instead be integrated into the software that individuals use on a daily basis. The assets we own will no longer need the form of money itself, as they will become "100% invested".

For example: What's the point of paying a commission on the sale of assets, purchasing currency, transferring it to someone who wants to purchase it, and doing all of this in order to purchase further assets? Eventually, fintech will make it feasible to move baskets of assets between counterparties without the need for monetary intermediation, but this will take time. 

Could it not be more convenient in a future where everything is connected to instantly trade a vehicle for a square millimetre of the Mona Lisa?

Cash in Russia

Russia is one of the top three nations in the world in terms of the penetration of non-cash payments, with a 75 per cent share. Olga Skorobogatova, the First Deputy Chairman of the Central Bank, stated that this is a positive dynamic and that the regulator plans to boost it even more in the future.

At the same time, the amount of cash in the hands of enterprises and the general public surged by 2.5 trillion rubles in 2020 alone, setting a new record for the previous 10 years. In the face of diminishing interest rates on deposits, economic players are more reliant on cash as a method of preserving their ability to access liquidity.

Mikhail Alekseev, Deputy Chairman of the Central Bank, is certain that until 2050, there will be no need to be concerned about cash. In this context, the following comment from Vladimir Demidenko, Deputy Director of the Cash Circulation Department of the Bank of Russia, is puzzling: "It can be stated with a high degree of assurance that they (cash) will absolutely survive." The question is, in what shape will it take place.

As a result of the above, it is reasonable to predict that the role of currency in the modern world will continue to decline. In the future years, it is possible that the most financially developed countries would become fully "cashless." Sweden is the country that is closest to the finish line on this route. In the case of Russia, there is no need to speculate about the country's rejection of currency in the coming decade. 

Changes are anticipated to become feasible around 2030 when the Central Bank's digital ruble will begin to circulate widely throughout the nation and become completely convertible.