Is The Cash Disappearance A PF Goldrush?

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The friend of my monetary enemy is my monetary enemy. In short, as long as fraudsters take a liking to $100 bills in the U.S., 1,000-franc notes in Switzerland and 10,000-yen pieces of paper in Japan, they should quickly head to the economic graveyard. Turns out, they are indeed going there—and sooner than many expect. But this news is critically important to the payment facilitator world. It provides PFs an opportunity where banks are literally unable to deliver.

An excellent piece on this appeared this week in Stratfor. That is my all-time favorite blog and I use it massively and make decisions based on what they say. I’ve read it for years because they are so very often right. For example, they accurately predicted the U.S.-Iran deal—six years before it happened. The Stratfor piece argued that all three of those popular slices of deadtree—the U.S. $100 bill, the 1,000-franc note and the 10,000-yen note—are in the monetary equivalent of intensive care.

“The eurozone has found a new scapegoat for international crime: the 500-euro note. The Continent’s leaders are seriously discussing decommissioning the euro’s highest denomination, which is favored by crime groups for transferring massive sums across international borders,” the Stratfor story said. “The idea is just the most recent step in an ongoing process moving Europe, and indeed the world, closer to an entirely cashless economy.”

The story points to the publication last month of a paper by Peter Sands, a Harvard lecturer and the former CEO of Standard Chartered, called Making it Harder for the Bad Guys: The Case for Eliminating High Denomination Notes. The paper, Stratfor said, “is an exhortation to world leaders to eliminate their high-denomination notes because they make it easier for criminals to move money internationally. Sands specifically names the 500-euro note as the first that should go because of its high usage in criminal networks, but he foresees the same fate for the 1,000-Swiss franc, 10,000-yen notes and the $100 bill.”

Note: A copy of the full story is available from the Stratfor site without subscribing. Just search for the headline “A World Without Cash” and they will e-mail you a copy for free. But please consider subscribing. It’s one of the few publications that I think repeatedly earns its subscription cost.

How does this impact PFs? Surprisingly directly, actually. As far as cash is concerned, someone has to terminalize the world, especially in emerging markets. Is it going to be the banks? Not a chance. PFs are positioned to create acceptance worldwide of digital payments. In many developing countries, this is a powerful opportunity for fintech companies in the PF world to fill the vacuum that is increasingly going to be left thanks to the rapid demise of cash.

Small merchants dramatically outnumber their larger siblings and it’s those legions of small merchants that are driving these economies.

Why won’t the banks do this? They can’t because bank business plans won’t permit it. Banks have a minimum bar for profitability per merchant and that number is simply far too high for many very small merchants. The banks have to spend the equivalent of hundreds of U.S. dollars for each merchant to onboard those small merchants, with endless paper and process.

Alternatively, PFs measure profitability on a transaction-by-transaction basis. And because they automate both underwriting and onboarding, they can easily handle those oceans of small businesses that the banks can’t afford to support.

Then there are the technological issues. The nature of today’s banks makes them slow to adapt to new technologies. But for PFs, embracing the latest payments—and payments-related—technologies is much of what they are all about. Banks are fundamentally not comfortable with new technologies. It takes far too long for the typical bank to implement new technologies.

To be clear, this by no means is to suggest that PFs will replace banks. Across the world, banks will play an increasingly critical role as a PF partner. Banks will be the gatekeepers, making sure that PFs comply with local and national laws and rule. Banks will always be the masters of compliance with laws, regulatory bodies and the crucial compliance with the payment network rules. If a PF ever needs reminding of the importance of KYC, their bank partners will be there, reminding with vigor.

Trust me: It’s far better for a PF to hear this nagging from a bank partner than to have regulators come in and less up their lives. And that’s what they will do.

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