Digital Disruption – Page 70 – Digital Finance Analytics (DFA) Blog

ANZ Announces New Team, and Focus (+Digital)

ANZ Chief Executive Officer Shayne Elliott today announced changes to the bank’s senior leadership team to improve focus on its retail, commercial and institutional customers. Commenting on the changes Mr Elliott said: “ANZ has terrific retail and commercial businesses in Australia and New Zealand and we have a great global institutional bank servicing regional trade and capital flows.

“These changes simplify how we work internally and allow us to bring greater focus to what we do uniquely well for our customers. The aim is to ensure we successfully compete in a world where connectivity and digital are more important to customers than ever before and where community expectations have never been higher,” he said.

Announcing the changes, which are effective from Monday 1 February, Mr Elliott also set out a number of medium-term priorities for ANZ:

Delivering value for customers through more innovative, convenient and engaging financial services.

Being Australia’s only truly regional bank by delivering solutions for customers through a more focussed, better connected international network.

Continuing to build a strong, cohesive culture known for ethics, values and fairness.

Delivering consistently strong financial results for investors balancing growth and return.

“The new structure brings greater clarity to what we do best for our customers with a leadership team that reflects a diverse mix of experience and new talent from inside and outside ANZ,” Mr Elliott said.

Institutional

Mark Whelan – Group Executive, Institutional with responsibility for Institutional Banking. Mr Whelan is one of ANZ’s most experienced executives having most recently been CEO Australia. Formerly Mr Whelan was Managing Director Commercial Australia and his previous roles include Managing Director Institutional Asia Pacific, Europe and America based in Hong Kong, and Joint Managing Director Global Markets.

Farhan Faruqui, Group Executive, International reporting to Mr Whelan and based in Hong Kong, will have responsibility for ANZ’s Institutional business in Asia, Europe and America. He will also join ANZ’s Executive Committee reflecting the strategic importance of Asia to ANZ’s future success.

Retail and Commercial

Fred Ohlsson – Group Executive, Australia with responsibility for Retail and Commercial Banking in Australia. Mr Ohlsson comes to the role from ANZ New Zealand where he has been Managing Director, Retail and Business Banking since 2013. He has worked in a range of senior roles at ANZ since 2001 including General Manager Commercial Products (Australia) and General Manager Products and Marketing for Esanda

David Hisco – Group Executive and CEO, New Zealand. Mr Hisco will continue in his role as Chief Executive Officer, ANZ Bank New Zealand Limited and will have additional responsibility for the Pacific (excluding Papua New Guinea), given its strong New Zealand linkages, and for ANZ’s retail business in Asia.

Joyce Phillips – Group Executive, Wealth, Marketing and Innovation with responsibility for ANZ’s insurance, investments and private banking businesses, as well as Group Marketing and Innovation.

A new role of Group Executive, Digital Banking will be established with responsibility for ANZ’s digital transformation. An external appointment to the role is expected to be announced in the coming months.

Other members of ANZ’s Executive Committee continuing to report to Mr Elliott are:

Graham Hodges – Deputy Chief Executive Officer who will have responsibility for ANZ’s international partnership investments in Indonesia, Malaysia, China and The Philippines. Mr Hodges will also remain Acting Chief Financial Officer. The internal and external search for a new Chief Financial Officer is well advanced and is expected to be finalised in the coming months.

Susie Babani – Chief Human Resources Officer

Alistair Currie – Chief Operating Officer

Nigel Williams – Chief Risk Officer

As part of the changes Gilles Planté, Deputy CEO Institutional and International Banking, Managing Director Business Portfolio Management and a member of ANZ’s former Management Board will be leaving ANZ.

DFA observes that the new GE Digital Banking is interesting, given that digital touches every aspect of banking and their customers. How will digital capabilities be overlaid on the existing operations?

Android Smart Phones can now use NAB Pay

NAB has launched its new mobile payment service NAB Pay, enabling customers to use their Android mobile phone to make purchases, without the need for a physical card. Customers with a compatible Android mobile device and a NAB Visa Debit Card can start using NAB Pay from today, available as part of the NAB Mobile Internet Banking App. NAB Executive General Manager for Consumer Lending, Angus Gilfillan, said customers were driving the agenda and increasingly wanted simple and easy digital payment solutions.

“We’re excited to launch our digital wallet and enable customers to make fast and safe purchases with their mobile phone”

NAB will also be the first Australian bank to utilise Visa Token Service in Australia, providing an important extra layer of security for customers. Tokenisation replaces a customer’s credit card number with a unique digital ‘token’ that can be used for digital payments, without revealing sensitive account information.

“Tokenisation improves protection for customers because physical card details are never used in the payments process, reducing the risk of fraud. NAB Pay gives consumers another reason to choose NAB as we continue to focus on delivering the number one cards experience in Australia.”

Last year, NAB announced a ten-year strategic partnership with Visa to collaborate on payments innovation and product development for customers.

“Our partnership with Visa is enabling us to significantly invest in our credit and debit card portfolio and act more quickly to deliver innovative solutions for our customers – as today’s announcement shows. We have a number of exciting initiatives planned this year and look forward to extending the NAB Pay application to support NAB credit cards in coming months.”

To use NAB Pay, customers will need a compatible Android device, have downloaded the latest NAB Mobile Internet Banking App and have a NAB Visa Debit card. NAB Pay is available wherever contactless payments are accepted.

This can see seen as a competitor to Apple Pay. which currently in Australia only works with Amex cards.

How basic income can solve one of the digital economy’s biggest problems

From The Conversation.

At a time of global economic insecurity, an insightful commentator identified the existential threat that technology poses to work:

We are being afflicted with a new disease of which some readers may not yet have heard the name, but of which they will hear a great deal in the years to come – namely, technological unemployment. This means unemployment due to our discovery of means of economising the use of labour outrunning the pace at which we can find new uses for labour.

These words by John Maynard Keynes in 1930 remind us that contemporary anxiety over jobs being taken from us by robots is not so far removed from fears of a greater vintage.

Indeed, the more these fears are periodically recycled and perennially assuaged, the less potent they appear to those who are sensitive to the long arc of human history. Nonetheless, this has been one of the major themes of discussion by world leaders at Davos.

John Maynard Keynes.

The exponential growth of digital technology since the 1990s has brought us to the “fourth industrial revolution”. Advancements have reached the point where highly skilled jobs are as susceptible to replacement by automation as ones which do not require much education or training. This is vividly exemplified by Silicon Valley entrepreneur Martin Ford’s contrasting of the radiologist’s vulnerability to automation with that of a housekeeper, whose decision-making processes are less easily replicated.

This is compounded by the concern that this new type of economy does not provide enough compensating positions for the jobs automated out of existence. As an illustration of how the most innovative digital companies can generate huge wealth on the back of the toil of relatively small numbers of people, look at how Google’s market value of US$377 billion is supported by just 53,600 global employees. Contrast this with General Motors‘ market value of US$60 billion and 216,000 employees.

This divergence would not be significant in an economy where the business of each company was completely separate. Now, though, the tech giants’ operations have seeped into other spheres of business, such that Google’s driverless cars makes the company a direct competitor of General Motors.

Martin Wolf, the Financial Times’ chief economics commentator, argues that these tectonic shifts should open up a space for a rethinking of our attitudes towards work and leisure. Rather than lamenting what automation robs us of, why not use it to generate greater opportunities for leisure and education, as well as liberate us from our constant anxiety that we will not be able to support our families in this unstable environment?

Technology has come a long way. Alexander Svensson, CC BY

An age-old idea

An obvious way to do this is by way of a basic income – redistribute wealth and give all citizens a flat, unconditional income. The idea is grounded in decades-old ideas and experiments. The Democratic candidate in the 1972 US election, George McGovern, for example, proposed a “Demogrant” of US$1,000 a year for every American.

Robert Reich, the labour secretary in Bill Clinton’s first presidential term has also advocated a combination of minimum income, earnings insurance and a US$60,000 nest egg for each citizen to cushion against the violent vicissitudes of the modern global networked economy. And, as Wolf advocated, Swiss campaigners for a basic income framed their arguments around the notion of improving citizens’ work-life balance.

Libertarian economist Milton Friedman. The Friedman Foundation for Educational Choice

It might surprise the reader to discover that ideas for a basic income come from figures on the right too, including the libertarian economist Friedrich Hayek. They were manifest in proposals for a negative income tax, first advocated by Milton Friedman in 1962, and which almost came to fruition during the Richard Nixon presidency in the form of the Family Assistance Plan.

The failure of this plan to get off the ground was accompanied by a series of negative income tax pilot schemes in a number of US cities with less than stellar results. Despite this, Conservative thinkers like David Frum argue that introducing a basic income would cut bureaucracy by eradicating the thicket of anti-poverty programmes currently in place. A number of new schemes – most recently in the Dutch city of Utrecht – might give us a better indication than their 1970s forebears of how these experiments might work in our highly automated economies.

Something that the head of the World Economic Forum, Klaus Schwab, has been keen to emphasise is the increasing tendency for benefits of the digital revolution to accrue to the many not the few. “As automation substitutes for labour across the entire economy, the net displacement of workers by machines might exacerbate the gap between returns to capital and returns to labour,” he said.

Keynes prediction in 1930 that within a hundred years people in the richest nations would be working only 15 hours a week might not come to pass. But given the potential of automation to confound economists’ employment projections, those gathering at Davos would be remiss to not consider a basic income as a credible policy response to contemporary anxieties about our role in the modern workplace.

Author: Andrew White, Associate Professor of Creative Industries & Digital Media, University of Nottingham

Should Davos delegates live in fear of the ‘Fourth Industrial Revolution’?

From The Conversation.

The World Economic Forum Meeting at Davos, Switzerland this year is all about navigating a path through the “Fourth Industrial Revolution”. Preceding industrial revolutions were centred on machinery, electrified mass production, and computers. The fourth is premised on emerging breakthrough technologies based on artificial intelligence, nanotechnology, brain research, robots, the internet of things, and much else.

Beneath the branding and the hype, major technological changes are happening that will have enormous implications for the organization of business, the pattern of work, daily life, and the future of capitalism. The rapid pace of change is set to continue, and the world will be very different in 30 years from now.

The publicity for the Davos meeting portends a world of joblessness, low productivity and inequality. But are these inevitable, and haven’t we heard such warnings before? It would be a mistake for delegates to assume that technological changes lead automatically to one set of possible socio-economic outcomes.

Getting it wrong

There is not a one-way causal relationship between technology and socio-economic arrangements. Causality works in both directions.

Financial, corporate, research and other institutions are necessary to finance, facilitate and nurture technological innovation. Furthermore, the diverse institutional arrangements that exist in modern global capitalism – compare the US, Japan, Germany, the UK and China, for example – show that similar technologies can be hosted by quite different financial, legal and business institutions. Consequently, technology alone is not the predictor of the kinds of socio-economic arrangements that may emerge in the next 30 years.

No one finds it easy predicting the outcomes from rapid change. Holger Wirth, CC BY-SA

When considering the future impact of technology, two great economists got it very wrong in the past. In Capital, Karl Marx argued that new technology under capitalism would lead inevitably to the deskilling of the workforce. But as Alfred Marshall pointed out, machines first replace the most monotonous and muscular labour. Other forms of work, involving adaptive skills and judgement, are less-readily replaced by machines.

Marx’s prediction of widespread deskilling has failed to materialise. Historical evidence shows that machines can enhance skills rather than reduce them. But this does not mean that extensive deskilling is ruled out: it is a possible scenario for the future.

Information economy

In another prediction, John Maynard Keynes predicted in 1930 a dramatic shortening of the average working day. He argued that his hypothetical grandchildren might have to work only 15 hours a week to satisfy their material needs. It is true that the average number of working hours has decreased in developed countries, but to nowhere near the levels envisaged by Keynes. Another prediction that has failed to materialise.

Both Marx and Keynes over-stressed the material aspects of production and underestimated the way in which economies entail the processing of information as well as the making of things. Any technology has to be organised, with effective communication between those involved. Specialist organisational, administrative and communication skills are required.

Making connections. A Health Blog, CC BY-SA

With the growing complexity of capitalism, this facet and type of work has increased relentlessly over the last 200 years. It has now reached the point that the majority of work in developed economies involves the processing of information, rather than the production of material things.

Real risks

But we are told that the Fourth Industrial Revolution may change all this, and that is why the Davos delegates are being asked to gravely consider the implications.

The World Economic Forum’s take on the Fourth Industrial Revolution.

One of its key features is that artificial intelligence will develop to the point that it can replace humans in making judgements and in the administration of complex systems. It is also suggested that artificially intelligent systems will soon be able to learn and innovate.

Given this, then, both Marx’s and Keynes’s scenarios become more feasible. We can now, just about, imagine a world run by robots and computers. Humans would be consigned to a life of enforced leisure, a world where humans have no need to learn productive skills.

But this is not necessarily the outcome of the new technology. While artificial intelligence may become capable of sophisticated judgements, it is likely that a number of intuitive human skills will be irreplaceable for a long time to come. Furthermore, it would be both difficult and dangerous to program decisions concerning moral judgement into a machine. These factors leave an important and potentially large space for human intervention.

But within that debate over the future of our information economy lies a genuine, and palpable risk. There are large inequalities in the distribution of wealth, and these will remain unless the high concentration of ownership of capitalizable assets is reduced. Crucially, much capitalizable wealth owned by corporations now consists of immaterial, information-based assets. There is a concomitant danger that monopoly control of key information will also stifle the innovation that allows us to manage this transition.

The outcome of the Fourth Industrial Revolution will depend as much on political and other developments as on technology itself. What is certain, as both Paul Mason and I have discussed in recent books, is that the 21st century will bring massive changes to economic systems and our patterns of work.

Author: Geoffrey M. Hodgson, Research Professor, Hertfordshire Business School, University of Hertfordshire

Automating the insurance industry

From McKinsey Quarterly.

The insurance industry—traditionally cautious, heavily regulated, and accustomed to incremental change—confronts a radical shift in the age of automation. With the rise of digitization and machine learning, insurance activities are becoming more automatable and the need to attract and retain employees with digital expertise is becoming more critical.

Our colleagues at the McKinsey Global Institute (MGI) have been exploring the implications of workplace automation across multiple industries. Although their preliminary report cautions that “activities” differ from “occupations” (the latter being an aggregate of the former), it presents some stark conclusions: for example, automation will probably change the vast majority of occupations, and up to 45 percent of all work activities in the United States, where MGI performed its analysis, can be automated right now with current technology.¹ This figure does not reflect the precise automation potential for each of these specific occupations, because activities are scattered across them, and different activities will be automated at different rates. But significant changes are clearly approaching in many industries, including insurance, whose potential for automation resembles that of the economy as a whole.

We’ve been studying the impact of automation on insurers from another angle. Drawing on our proprietary insurance-cost and full-time-equivalent (FTE) benchmarking database, we focused on Western European insurers, forecast the outcomes for about 20 discrete corporate functions, and aggregated the results.² Our work indicates that some roles will undoubtedly change markedly and that certain occupations are particularly prone to layoffs; positions in operations and administrative support are especially likely to be consolidated or replaced. The extent of the effect differs by market, product group, and capacity for automation.

Steeper declines will occur in more saturated markets, products with declining business volumes, and, of course, the more predictable and repeatable positions, including those in IT. Other roles, however, will experience a net gain in numbers, especially those concentrating on tasks with a higher value added. The broader corporate functions including these roles will lose jobs overall. But some positions will be engines of job creation—these include marketing and sales support for digital channels and newly created analytics teams tasked with detecting fraud, creating “next best” offers, and smart claims avoidance. To meet these challenges, insurers will need to source, develop, and retain workers with skills in areas such as advanced analytics and agile software development; experience in emerging and web-based technologies; and the ability to translate such capabilities into customer-minded and business-relevant conclusions and results.

The net effect of such position-by-position changes is harder to determine with certainty. Numerous variables affect each role’s outcome—whether job creation or contraction—which means that the sum of these potential outcomes could shift significantly. To analyze these outcomes, we have factored in variable growth rates across separate regions and product groups, as well as the possibility of increasing cost pressures (including those arising from a low-interest-rate environment). Our most probable outcome for insurers sees up to 25 percent of full-time positions consolidated or reduced as a net aggregate, occurring at different rates for different roles over a period of about a decade.

That’s neither a negligible amount of job loss nor an unimaginably distant time frame. On the contrary, given the magnitude of these changes and the looming future, it’s important that insurers begin to rethink their priorities right now. These should include retraining and redeploying the talent they currently have, identifying critical new skills to insource, and retuning value propositions in the war for new talent and capabilities. That competition will almost certainly increase as the digital transformation takes hold. The first waves are already hitting the beach.

MasterCard Invests in Bitcoin Venture as Cryptocurrency Debate Escalates

From Brandchannel.

As the debate over the long-term viability of bitcoin continues to swirl, major financial brands are investigating in the technology including NASDAQ, Barclays and MasterCard—the latter investing last year in bitcoin company Digital Currency Group (DCG).

Blockchain, the technology behind bitcoin, uses sophisticated cryptography and distributed ledgers to regulate, record and enable bit coin transactions. According to Business Insider, blockchain “has the potential to strip out huge amounts of administrative costs, and companies around the globe are signing up to get a piece of the action through consortiums and direct investment.”

Garry Lyons, MasterCard’s chief innovation officer, told Business Insider, “Like the rest of the world, we’re interested in seeing where blockchain technology goes, and that’s why we invested in DCG. It’s connected to 15 different others and they have their fingers in the right pies, so we’ve got the right engagement right now to see people experimenting with the underlying tech.”

It’s not just the industry that’s excited about blockchain. “It’s the world, everyone,” continued Lyons. “Even at Davos, every single tech panel I have gone to mentions blockchain, and some people call it the second coming. But while we think it’s very interesting, we don’t want to, and no one wants to, be blindsided by rushing into it.”

The rush is causing predictions of bitcoin’s imminent demise as well as its meteoric potential—with blockchain consortium R3 announcing that 11 major investment banks had made trades on an open-source alternative to bitcoin, according to International Business Times.

Lyons commented, “R3 is an interesting way of doing that because it brings several interested parties together to experiment with underlying tech. It’s a good opportunity for the banks, and there’s more chance of blockchain technology succeeding as a group than disparate parties.”

Meanwhile, bitcoin took a dive last week, losing 13 percent of its value to settle at below $365 for the first time since early December 2015 as news that Mike Hearn, a core developer of the software, was quitting and pronouncing bitcoin a failure.

Hearn’s frustration over scaling the cryptocurrency and rejection of his proposed Bitcoin XT, a version of the bitcoin core but with bigger blocks for more transactions, led to his departure. “From the start, I’ve always said the same thing: Bitcoin is an experiment and like all experiments, it can fail,” said Hearn in Venture Beat. “The now inescapable conclusion that it has failed still saddens me greatly.”

“To paraphrase Mark Twain, it would seem that reports of Bitcoin’s death are greatly exaggerated,” counters Nasdaq.com. “The network faces a huge challenge in the near future as a solution to continuing increases in popularity must be found, but that is in many ways a wonderful problem to have.”

TechCrunch noted that bitcoin is unregulated and provides anonymity, so it rapidly became a haven for drug dealers and anarchists. “Its price fluctuated wildly, allowing for crazy speculation. And, with the majority of Bitcoin being owned by the small group that started promoting it, it has been compared to a Ponzi scheme.”

In addition, the bitcoin network can process only a handful of transactions per second, reports TechCrunch, resulting in unpredictable transaction-resolution times and fees that exceed credit-card fees at peak times.

“In the beginning, Bitcoin was a noble experiment,” concludes TechCrunch. “Now, it is a distraction. It’s time to build more rational, transparent, robust, accountable systems of governance to pave the way to a more prosperous future for everyone.”

Enter block chain—perhaps the second coming, perhaps not.

Your Social Media Posts May Soon Affect Your Credit Score

From Forbes.

In the US, there’s a new reason to be careful when updating your Facebook status. As reported on Investors.com, talking about a weekend of debauchery might lower your credit score.

The Fair Isaac Corporation (or FICO), a credit rating agency, is implementing new strategies for assessing a consumer’s creditworthiness. In addition to looking at the information offered on social networking sites, the agency will also be looking at smartphone records.

“If you look at how many times a person says ‘wasted’ in their profile, it has some value in predicting whether they’re going to repay their debt,” FICO CEO Will Lansing told the Financial Times.

TransUnion, another credit rating company, is also adding ways to determine a credit score. While the agency will not be using social networking websites, they will add data from payday lending businesses and club memberships.

The agencies both said the new data will supplement the current assessments tools, which include credit card and loan records.

The new credit assessing system is not necessarily intended to negatively impact credit scores. The new method can also give consumers access to credit. FICO reported that nearly 18 million Americans don’t have access to credit because they had negative reports in the past. An additional 25 million have never had credit.

In the report, FICO said, “Using the right alternatives to traditional credit bureau data, lenders can reliably identify millions more consumers who qualify for credit.”

TransUnion says its new CreditVision system has been able to approve an additional 24% of consumers for auto loan lenders.

What Is The Potential of Blockchain?

Yesterday we highlighted the IMF report on virtual currencies. Underlying this are blockchain technologies. Strategy&’s s+b have published a long article “A Strategist’s Guide to Blockchain” which is worth reading in full. Here is a brief extract:

The name of the technology that could make all this happen is blockchain. Originally the formal name of the tracking database underlying the digital currency bitcoin, the term is now used broadly to refer to any distributed electronic ledger that uses software algorithms to record transactions with reliability and anonymity. This technology is also sometimes referred to as distributed ledgers (its more generic name), cryptocurrencies (the electronic currencies that first engendered it), bitcoin (the most prominent of those cryptocurrencies), and decentralized verification (the key differentiating attribute of this type of system).

At its heart, blockchain is a self-sustaining, peer-to-peer database technology for managing and recording transactions with no central bank or clearinghouse involvement. Because blockchain verification is handled through algorithms and consensus among multiple computers, the system is presumed immune to tampering, fraud, or political control. It is designed to protect against domination of the network by any single computer or group of computers. Participants are relatively anonymous, identified only by pseudonyms, and every transaction can be relied upon. Moreover, because every core transaction is processed just once, in one shared electronic ledger, blockchain reduces the redundancy and delays that exist in today’s banking system.

Companies expressing interest in blockchain include HP, Microsoft, IBM, and Intel. In the financial-services sector, some large firms are forging partnerships with technology-focused startups to explore possibilities. For example, R3, a financial technology firm, announced in October 2015 that 25 banks had joined its consortium, which is attempting to develop a common crypto-technology-based platform. Participants include such influential banks as Citi, Bank of America, HSBC, Deutsche Bank, Morgan Stanley, UniCredit, Société Générale, Mitsubishi UFG Financial Group, National Australia Bank, and the Royal Bank of Canada. Another early experimenter is Nasdaq, whose CEO, Robert Greifeld, introduced Nasdaq Linq, a blockchain-based digital ledger for transferring shares of privately held companies, also in October 2015.

If experiments like these pan out, blockchain technology could become a game-changing force in any venue where trading occurs, where trust is at a premium, and where people need protection from identity theft — including the public sector (managing public records and elections), healthcare (keeping records anonymous but easily available), retail (handling large-ticket purchases such as auto leasing and real estate), and, of course, all forms of financial services. Indeed, some farsighted banks are already exploring how blockchain might transform their approaches to trading and settling, back-office operations, and investment and capital assets management. They recognize that the technology could become a differentiating factor in their own capabilities, enabling them to process transactions with more efficiency, security, privacy, reliability, and speed. It is possible that blockchain could transform transactions to the same degree that the global positioning system (GPS) transformed transportation, by making data accessible through a common electronic platform.

Blockchain could become a force anywhere trading occurs, trust is at a premium, and people need protection from identity theft.

But although the potential is immense, so is the uncertainty. Distributed ledger technologies are so new, so complex, and so prone to rapid change that it’s difficult to predict what form they will ultimately take — or even to be sure they will work. The Gartner Group declared in an August 2015 report that crypto-currency was traveling a “hype cycle”: it had passed the Peak of Inflated Expectations and was headed for the Trough of Disillusionment. Another research firm, Forrester, titled its 2015 blockchain report “Don’t Believe in Miracles,” advising enterprises to wait five to 10 years before introducing blockchain, in part because of legal restrictions.

On the other hand, some authorities advocate energetic R&D. “The distributed payment technology embodied in bitcoin has real potential,” said Andrew Haldane, chief economist of the Bank of England, in September 2015. “On the face of it, it solves a deep problem in monetary economics: how to establish trust — the essence of money — in a distributed network.”

If you are a senior executive in a financial-services firm, you may already be experimenting with distributed ledger technologies, if only to see how they fit with your strategy. You have lots of company. By 2014, more than a dozen major companies were actively exploring blockchain-related ventures and their potential effect on core practices (see Exhibit 2). For example, blockchain might streamline transaction processing by establishing a single source of truth, available to all, updated in near-real time. This could increase the speed of exchange, reduce the number of intermediaries (and the costs associated with them), improve security, digitize assets, give wider access to people who don’t have bank accounts, enable better bookkeeping, and improve regulatory compliance.

Will Australia Be One of the First Countries to Go Cashless?

According to Mastercard, retailers in Denmark could start phasing out cash payments this year, but half of Australians think that the land down under will still be one of first in the world to go cashless. Already paving the way for digital- only payments, the majority of Australians (58%) believe more cash will be removed from general use within the next five years. This is supported by Reserve Bank of Australia figures confirming the decline in cash withdrawals from ATM’s.

Galaxy research commissioned by MasterCard, found that Australians are slowly preparing themselves for the switch, with two-thirds (64%) already reducing the amount of cash they carry on them; more than half (53%) now carry less than $50 in cash. Some Australians would even be happy to see coins phased out sooner than paper (42%), marking them cumbersome and annoying to carry (40%).

While speed and convenience continue to drive the popularity of card payments, the readiness to flip from coin to card could also be a result of increased safety concerns. More than one in three (36%) Australians believe that society would be safer if cash wasn’t around.

Andrew Cartwright, SVP and Country Manager, Australia, MasterCard, believes that the safety advantages associated with cards will play a big role in the adoption of a cashless society.

“Australians have long considered credit and debit cards a fast and convenient way to pay, but what we are starting to see is a real understanding of, and appreciation for, the safety benefits of cards over cash. Australians know that in the instance their wallet is stolen or lost, any cash is as good as gone. However, knowing they’re protected against any unauthorised purchases on their cards provides the peace of mind they need in an already unfortunate scenario.”

As the likelihood of a cashless country increases, businesses are urged to stay ahead of the curve, with one in three Australians (39%) believing retailers need to do more to embrace new payment innovations to help eliminate cash.

Cash-only businesses may have a longer way to go in the eyes of modern shoppers. Most Australians (89%) have negative perceptions of ‘cash-only’ businesses, associating them with being very small (70%), trying to avoid declaring income or paying tax (42%), and being unsophisticated (19%).

About the Research:

The study was conducted online during December 2015 using a sample of 1,005 Australians aged between 18-64 years old across Australia.

Will Virtual Currencies Go Main Stream?

Virtual currencies (VCs) and especially their underlying technologies are a potentially important advance for the financial sector that could increase efficiency and financial inclusion, but can also serve as vehicles for money laundering, terrorism financing, and tax evasion. Achieving a balanced regulatory framework that guards against risks without suffocating innovation is a challenge that will require extensive international cooperation, says a new IMF staff paper, “Virtual Currencies and Beyond: Initial Considerations,” released by the International Monetary Fund (IMF) during the World Economic Forum.

The report provides an overview of virtual currencies, how they work and how they fit into monetary systems, both domestically and internationally. It discusses the potential implications of the technological advances underlying virtual currencies, such as the distributed ledger system, before examining the regulatory and policy challenges posed by VCs, in the areas of consumer protection, financial integrity (money laundering and terrorism financing), taxation, financial stability, exchange and capital controls and monetary policy. The paper also sets out principles for the design of regulatory frameworks for VCs at both the domestic and international levels.

As digital representations of value, VCs fall within the broader category of digital currencies (Figure 1). However, they differ from other digital currencies, such as e-money, which is a digital payment mechanism for (and denominated in) fiat currency. VCs, on the other hand, are not denominated in fiat currency and have their own unit of account.

High price volatility of VCs limits their ability to serve as a reliable store of value. VCs are not liabilities of a state, and most VCs are not liabilities of private entities either. Their prices have been highly unstable (see Figure 2), with volatility that is typically much higher than for national currency pairs. Both prices and volatility appear to be unrelated to economic or financial factors, making them hard to hedge or forecast.

Computing technology has made possible decentralized settlement systems built on distributed ledgers distributed across individual nodes in the payment system. Centralized systems have a master ledger keeping track of transactions maintained by a trusted central counterparty. In a distributed ledger system, multiple copies of the central ledger are maintained across the financial system network by a large number of individual private entities. The network’s distributed ledgers—and hence individual transactions—are validated by using technologies derived from computing and cryptography, most often derived from the so-called blockchain technology. These technologies allow a consensus to be achieved across members of the network regarding the validity of the ledger. This distributed ledger concept underpins decentralized VCs—for example the blockchain technology behind Bitcoin. The distributed ledger provides a complete history of transactions associated with the use of particular units of a decentralized VC. They provide a secure permanent record that cannot be manipulated by a single entity and do not require a central registry.

A key conclusion of the paper is that the distributed ledger concept has the potential to change finance by reducing costs and allowing for deeper financial inclusion in the longer run. This could be especially important for remittances, where transaction costs can be high, around 8 percent. Distributed ledgers can also shorten the time required to settle securities transactions, which currently take up to three days, as well as lower counterparty and settlement risks.

“Virtual currencies and their underlying technologies can provide faster and cheaper financial services, and can become a powerful tool for deepening financial inclusion in the developing world,” said IMF Managing Director Christine Lagarde, who presented the report at the World Economic Forum, in Davos, during the panel Transformation of Finance. “The challenge will be how to reap all these benefits and at the same time prevent illegal uses, such as money laundering, terror financing, fraud, and even circumvention of capital controls.”

Note: Staff Discussion Notes (SDNs) showcase policy-related analysis and research being developed by IMF staff members and are published to elicit comments and to encourage debate. The views expressed in Staff Discussion Notes are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.