For most of us, gone are the days when you would visit the bank to withdraw large sums of cash to cover your monthly spend. With very few places (if any) demanding a minimal charge for contactless transactions, it’s easier than ever to pay for small items without having to carry any money around. Last year, contactless transactions doubled and many companies like Visa are encouraging UK businesses to go cashless too.
But why is it that we are moving towards being a cashless society? And how do investors really feel about the rise of digital currencies, such as Bitcoin? This week’s article explores these subjects in greater detail.
Are we becoming a Cashless Society?
These days, fewer people carry change in their wallet or purse. Most of us now rely on contactless payments to buy daily things like food, toiletries or clothes. Most large multi-storey car parking meters take credit or debit cards. So, why would you want to carry cash around? There are still some people who prefer cash to cards – and they may have a point.
“the Bank of England reckons as many as 5% of Britons rely almost entirely on cash”
Source: MoneyWeek – 21 July 2017
Some economists warn that removing cash from our society comes at great risk: control. In a cashless society, information replaces cash – therefore, how that information is used and interpreted depends on the way in which it is stored. Some argue that by removing cash from the individual, this also means removing their power and their freedom to control their money. With increased hacking crises, many believe that a large-scale ‘financial hack’ could put cashless countries in economic danger.
However, there are obvious benefits to online payments. Paying for a product or service online is easier, with an email receipt usually sent directly afterwards. Visa argues that cashless transactions are more secure and convenient for shoppers. Also, an increasing number of payment processing companies, such as Worldpay, are making it easier and affordable for businesses to transact online with their customers and suppliers.
For many small to medium-sized businesses (SMEs), the benefits of card payment systems are outweighed by the charges. Costs include ‘merchant fees’ to the provider processing the payment and ‘interchange fees’ (charges levied by the banks and credit card issuers operating the payment system). This will change to some extent when the government brings in a highly welcomed ban on charges for card payments.
“The new ban – which will take effect from 13 January 2018 – will mean retailers and traders are no longer allowed to charge you for using your credit or debit card when making a purchase.”
One of the reasons HMRC is rolling out the new Making Tax Digital service is to decrease ‘tax errors’. However, this is also a way of decreasing the number of cash-based businesses, as an attempt to reduce tax avoidance due to unclaimed income.
What is Bitcoin?
If you’ve not heard of the infamous Bitcoin, we will bring you up to speed. Bitcoin is a ‘cryptocurrency’ – a ‘digital medium of exchange’ using cryptography (the art of writing/solving codes). In simple terms…
“…it’s as if the number of pounds in circulation were controlled not by the Bank of England, but by the algorithms running on an interconnected network of millions of computers worldwide.”
Source: MoneyWeek – 28 July 2017
Bitcoin was released in January 2009 as the world was still very much in the throes of the global financial crisis. Over the years, cryptocurrencies have evoked controversy as many people have lost great sums due to volatility: values can wildly fluctuate within a very short time. In 2014, there was a major collapse at MtGox, the world’s largest bitcoin exchange at the time – 850,000 bitcoins worth around $450m went missing.
Bitcoin is one of many cryptocurrencies; there is an increasing number emerging. The main danger of investing into cryptocurrencies is the fact that many are run by unscrupulous scamsters using sophisticated marketing schemes. Cryptocurrencies are used on the ‘dark web’ by criminals. Therefore, it’s no surprise that many investors have more than a few trust issues with this digital currency. Always seek professional advice before making any investment you are unsure of.
A recent move in cryptocurrency is the emergence of ICOs (initial coin offerings), which are being sold as tokens to raise funds for tech or business ventures. A bit like crowdfunding, it is an unregulated ‘initial public offering’. However, many ICOs appear to be fraudulent, so this really is the ‘wild west’ when it comes to investments. We expect the bubble will burst at some point with an inevitable regulatory crackdown.
Have you ever invested in a cryptocurrency? If you would like advice on creating a sound investment strategy, please get in touch to speak to one of our financial planners.