What is the future of money? A debate between Monzo and the Bank of England…
Two of us from Mapa Research attended a debate at Imperial College last week, around the Future of Money as part of their Money Matters event. featuring Tom Blomfield, founder of Monzo, and Victoria Cleland, chief cashier of the Bank of England, there was a lively conversation around cash, apps, trust, cryptocurrency and digital identity.
First, Victoria took us through some slides about what money actually is (with the caveat that she is not wedded to the concept of physical cash despite her job title… and she has plenty of experience elsewhere so isn’t at all concerned about her career prospects…!). She explained that the Bank of England is very open to new forms of money, and is undergoing a multi-year research project into whether they should be offering cryptocurrency accounts to UK citizens.
What is money?
Victoria shared some interesting stats around cash: The demand for it in the UK hasn’t actually gone down, as many believe, although WHERE much of it is is a mystery to the Bank of England. One of the benefits of cash becomes a source of frustration for statisticians: Could it be under a mattress? It’s totally anonymous. As the body responsible for achieving the correct denominational mix, they have helped banks provide more five-pounds notes – but it helps ‘meet demand, not impose it.’ Due to this demand, as well as concerns around security, the new polymer £5 was introduced last year after rigorous trials and experimentation.
However, the proportion of transactions made using cash is going down, and dropped below 50% for the first time last year. But Victoria doesn’t see it going away. It’s useful for budgeting, she says, citing her student days heading out with only a tenner to avoid carnage, and for speed, for certainty the transaction has happened, for continuity (other things fail), and because ultimately people still have trust in banks, it is trusted.
But there are ‘rivals’ appearing, she appreciates. While contactless is most likely replacing chip & PIN (rather than cash), it is cryptocurrencies that the Bank of England sees as the next thing it needs to have a view on – hence the ongoing research into whether they as a central bank should do it, or if this would have too large an impact on the financial sector.
Tom Blomfield then shares his views, starting with the note that he got his licence from the FCA and opened Monzo’s account with the Bank of England merely months ago. (He has been asking himself, as a result of this, how one might ‘bootstrap an economy’ – would a newly discovered island need a central bank?!)
He explains Monzo as a ‘current account on your smartphone’, a company focused not on financial products but on addressing pain points. They don’t simply use the mobile phone as a distribution method; they believe that the future of payments revolves around transaction data and digital identity, and therefore the mobile makes payments easier and better for customers. For example, he can envisage a day when you use a third party (read: Monzo) app to pay at a store, and your loyalty points for that store are added automatically. You would give all your relevant data to this ‘trusted custodian of your wealth’ and it would help you work out where you could get a better deal on e.g. electricity or a business loan.
Moderator Dr Andrei Kirilenko, Director of the Centre for Global Finance and Technology, a Senior Research Fellow at the Brevan Howard Centre for Financial Analysis, and Visiting Professor of Finance at the Imperial College Business School, asks about trust. He makes an interesting point about the banks of old – with ‘the architecture of temples’ and intended to awe and emulate religious structures – compared to the bank’s of today: glass structures to be literally ‘transparent’ to customers.
Victoria responds to the trust question by going back to her polymer fiver. She explains all the cool features of it that make it impossible (or, certainly, costly) to replicate. There is a lot of technology in here, she says.
Tom says that the notion of trust has changed. Where previously there was a huge asymmetry of information, consumers have access to more info than ever, and are less likely to be blindly loyal to a brand. Today, he claims, it’s about service – and someone will be loyal to your brand if ‘it just works’. A philosophy he clearly promotes at Monzo, Tom believes that a company should 1. Do what it says it’s going to do and 2. Responds appropriately when they mess up.
Yes, cash has rivals
So, what is the future of cash? Victoria says she isn’t worried about cash dying out, with every central bank in Europe reporting the same trend of continuing demand for cash (with the one exception of Sweden – where there are, however, still groups who love it). The panel discusses the issues of social inclusion (does a cryptocurrency play into that?) and negative interest rates – easier to implement under a digital format.
Does Victoria envisage a return to the barter economy? Not really, because ‘time doesnt work as a store of value’, and how does a doctor’s time compare to someone else’s?
For Tom, the future of cash is using data plus your digital identity to give a trusted third party (with your consent) control of your finances. Cash is dead, he says, long live Monzo!
One reason the Bank of England may introduce a digital currency, says Victoria, is to save on collateral/deposits at the central bank (plus efficiency gains, plus there may be rising demand, plus other central banks might do it) – something Tom does note is unwieldy. For him, however, Blockchain is ‘a hammer looking for a nail’. The issues around huge deposits being held at the Bank of England could be solved with better, more up-to-date technology, and Blockchain could be better used for cross-border payments. It’s ‘overhyped’, he claims, and says AI is more exciting. He compares Blockchain to software, saying people don’t understand that it isn’t magic, it’s just a smart use of computers. He calls for a ‘sensible use of software.’