The future of payment systems

Posted in: Tips & Tricks | by: Olid Uddin

We are becoming a cashless society. but what is the future of payment systems? What relevance does this have to the UK vending industry? There are now more contactless cards than people in circulation. If that wasn’t evidence enough further legislation in the retail sector has become a driving force behind usage of contactless payments. This of course presents challenges to the UK automatic vending and coffee industry whom occupants often employ a fleet of existing equipment in the market.

The vending industry often finds itself at the forefront of discussions around payment systems technology. The discussion largely revolves around the benefits and challenges of utilising contactless systems. Companies such as Vianet plc, Mei Payment systems and Payment sense offer various solutions to businesses that allow their respective client’s end users transact payment without ever touching hard cash. Relatively new contactless systems provide the benefit of providing data such as service history and sales from the coffee machine 24/7. This enabling technology is often referred to as ‘the internet of things’ and is somewhat of a buzzword in a number of industries. Whilst this subject is of much current importance and interest it is not the premises of this article.

This article is not aiming to scrutinize the current challenges and benefits of today. But instead gaze upon more alternative, distant realms of possibility of the not so far future of payment systems.

In recent months more alternative payment methods have taken up popularity in the mainstream media, particularly cryptocurrencies. The most notorious of all being Bitcoin. An elusive currency that has characteristics of a commodity but behaves like a currency and is wholly digital? How does it work? Where does it derive its value from? And what relevance if any, may this have on our the vending industry?

What is Bitcoin? Originally created by the elusive Satoshi Nakamoto, Bitcoin is the world’s first digital currency that operates a decentralised, peer to peer system. No one central entity controls the printing or creation of this digital currency. The currency is validated and secured through cryptography and complex mathematics and the ledger of transactions as well as the code is published as open source for its community to review and edit. Coins are produced by ‘mining’, which consequently has an effort which in theory is where the value of the Bitcoin production is derived from, this translates in to the cost of energy in computing power. Mining is the action of computers solving puzzles of varying difficulty or confirming transactions in the block chain to support the network. The blockchain is the public ledger in which all transaction history is recorded publically and irreversibly achieved. Other than mining to obtain this currency you can purchase from an exchange or from an individual to another.

So why all the fuss? Why does it matter to those in the vending industry or those concerned with Payment system innovation?

The theory goes as follows most countries in the west operate on what we would call a fiat currency which gives the issuer the right to be the sole provider of a currency this is a system largely based on Trust of the issuer. Bitcoin differs from this model. The security and legitimacy of that coin is shrouded in mathematical code so once that Currency is in existence it is posted in a public ledger that is audited by the community. This in theory provides the benefit of not having a centralised entity telling you what the value of your method of transaction is worth. Further to this it offers a simple and easy way to transact value across country boundaries.

For example imagine you offer a coffee machine ‘how to’ help guides to a small business in Singapore. The value of your exchange is only worth around £50 for arguments sake. Using the fiat currency system via visa or MasterCard you would ensue hefty charges to make that transaction which would render the exchange too costly. Bitcoin doesn’t incur heavy unreasonable transaction fees. You simply send your money to the provided address and the only transaction fee is not volume based but a flat regardless of volume this charge is for the processing power of the community to confirm the transaction in the blockchain.

A further heavily cited use for Bitcoin is benefit of anonymity. Many of these people are those that believe in concepts such as net neutrality for better or for worse. The thinking goes as follows; the internet is a common wealth product for the people to use and all benefit from. This should not be controlled and censored by a given state, this censorship may be a encroachment of one’s freedom. Obviously this is an ethical, moral and political mine field. Which this article is not aiming to focus on but you can’t mention Cryptocurrencies without recognising these concepts briefly.

So despite the minefield above how is it that as of writing Bitcoin has hit yet again another high in a speculators market. The value of Bitcoin is $3000 to the Bitcoin/BTC.

What if, as some companies do vending machines started to accept Bitcoin?

Firstly vending machine companies have been blighted from day one with heavy early adoption costs. Some companies charging up to an astonishing 6% transaction fees, squeezing and profiteering off an already saturated, highly competitive market place. What would it mean for a vending machine company to accept digital payment with no volume associated transaction fees? Utopia! Could you imagine the benefit that not just the customer may receive but the operator and suppliers from a more liquid approach to exchange? Cash is often cited as the blood of the economy. We all saw what happened to global economies when credit was squeezed, so isn’t it time for more financial innovation that may provide more mutual benefit.

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