The world of fintech is moving quickly—so quickly, that some nations are already talking about becoming cashless societies in the next five years. Fintech, which means purely digital banking and payments systems, is changing the way that we live—and experts say it’s time to fully embrace the possibilities of the technology. “There’s a real optimism in Australia around digitisation, particularly since the Hayne Royal Commission into the banking industry,” says Rob Nicholls, Senior Lecturer in the School of Taxation and Business Law at the University of New South Wales. “Banks see that it will not only improve customer service, but will take out miscommunications by people, and customers will get what they want, when they want it, without someone stepping in who may not have their best interests at heart.” A report by consulting firm PwC called Financial services technology 2020 and beyond: Embracing disruption looked at the changing landscape and found that digital will become mainstream, cyber security will be a risk to banks, and Asia will emerge as a key centre of technology-driven innovation. As for consumers, we will continue to see rapid changes to the way we handle our money. Is Australia becoming cashless? “In the next five years, we’ll see ourselves increasing using of tap and go capabilities for small transactions, such as ApplePay and GooglePay. We might start using more things like watches and wearable bands embedded with payment information,” Nicholls says. “What it all points to is the removal of cash for a means of exchange. In Scandinavia there’s expectations that cash can be phased out within the next three to five years.” Australia is not far behind, we are already the sixth highest users of digital payments in the world, with only 37 per cent of household spending now done using cash compared to 69 per cent a decade ago. Young people are also adopting new methods of digital payments, particularly ‘buy now, pay later’ systems such as AfterPay, zipMoney, and zipPay. According to research firm Roy Morgan, over 7.2 per cent of Australians aged over 14—1.5 million people—have used such a service in the last 12 months. “It’s short term, high interest credit—a variance of payday lending, but without the feel,” Rob Nicholls says. “It carries horrendous interest costs if you don’t make a payment, but it’s proving hugely popular both here and in the United Kingdom.” What is Blockchain technology? Nicholls is also sceptical when it comes to the much-touted blockchain technology, the digital ledger that records peer-to-peer transactions behind cryptocurrencies that is said to be incorruptible. “It’s great if you’ve got no one within a payment system that you trust. But even if you hate your bank, you probably trust them, or if not them then the Reserve Bank, so I don’t think we’ll be seeing much blockchain technology for consumers.” Ultimately payments and payments systems are all about trust—and Nicholls believes that his means that we are more likely to see digital payment innovations coming from places that we already know, such as Google and Amazon. Last month, Facebook rocked the fintech world by announcing that it is launching its own cryptocurrency, Libra, targeting the ‘unbanked’—the estimated 1.7 billion people worldwide who have a smartphone but no bank account. Libra will have almost no transaction fees, because the currency is aimed to tie more businesses to its platform to sell products and therefore buy more ads. While Facebook says that Libra “should be as easy and cost-effective as—and even more safe and secure than—sending a text message or sharing a photo,” some believe that the currency will run into the same regulatory troubles that the social network is currently facing. “It could certainly do some good by reducing the cost of transferring money,” says University of Chicago Professor Eric Posner. “But government regulators need to approach Libra with a great deal of scepticism, given Facebook’s track record of moving fast and breaking things.” Facebook Libra vs the banks Rob Nicholls believes that because disruption is coming from places which already have a high consumer touch, the banking system might beat Facebook and others to the punch by disrupting itself. One of the first areas in which we will see big changes is in international funds transfers. “Just as we’ve recently seen in Australia with the National Payments Platform (NPP), banks are working to get a global system underway to allow transfers across borders to occur very rapidly—as in minutes rather than days,” Nicholls says. The change in international payments may lead to financial institutions needing additional verifications to ensure that customers aren’t transferring money laundering or terrorism, and this means that there is an increased likelihood of fraud. “It will cost banks in the hundreds of millions for systems upgrades, but that’s the cost of doing business, and we shouldn’t see much of it passed on to customers.” Nicholls believes that the risks of increased digitisation of the financial system also presents many opportunities. “Because there is an expectation that all of the cyber security issues will be dealt with by the bank, and the consumers won’t be involved at all, we will see them beef up security. “This will happen in terms of biometric information, like with the facial recognition when you unlock your phone, and we’ll certainly see more of that associated with tap and go payments,” he says. “The optimism we’re seeing from banks and financial institutions about the future of fintech is certainly warranted.” The information contained on this web site is general in nature and does not take into account your personal situation. You should consider whether the information is appropriate to your needs, and where appropriate, seek professional advice from a financial adviser. If you or someone you know is in financial stress, contact the National Debt Helpline on 1800 007 007.