August 17, 2015
Cash replacement was designed to solve a problem; it was not supposed to be a bug looking for a windshield. It was supposed to be a transaction service, and possibly even more profound would be the impact of various value-added services like providing credit to facilitating payroll to distribution of social benefits to enabling virtual commerce between consumers, businesses, and the government.
Now, the question is, has cash replacement gone from being the philosopher’s stone to a Trojan horse?
I’m using the term philosopher’s stone because I feel that the whole purpose of creating a cash replacement mechanism was to replace all the demerits of cash transactions and creating convenience for users. The focus was supposed to be on the transaction capability. However, things are not going the same way. The solutions that are arriving in the market look more like a Trojan horse because the solutions are not focusing on transactional capability. Instead, it’s more focused on value-added services. Each program is trying to gain market share by offering more points and value-added services, instead of focusing on the core aspect, i.e., transaction capability. With every new cash replacement program, what is of great interest is how many points can be earned and redeemed as well as who else is going to have access to the data and related analytics.
As a reader, what are the things that make you execute payments with a specific solution? You will also accept the fact that discounts, credits and points earned are the things that increase your loyalty towards a solution. Very few people actually bother about the quality of transactions.
So, what is now more important? Is it cash replacement with more focus on the quality of transactions? Mehul Desai, Co-founder of CSAM, has a solution which he illustrates in his upcoming book August of Money - The Quest for Cashless Society. He feels that what’s more important is to understand is the fact that cash replacement’s evolution into a Trojan horse is not a conspiracy but a function of the market. It is more important to create a roadmap for a cashless society.
Cash replacement is clearly an evolution of cash strictly from a transactional perspective. Effectively, they both share several points of convergence specific to the consumer and service provider; they could not be more different fundamentally. The biggest point of divergence between cash replacement and cashless is the inability of cash replacement to transfer the complete value from the debtor to the creditor. Simply put, the face value of a cash replacement instrument does not reflect its real value. Hence, the debtor will have to bear an additional cost to facilitate a transfer to the creditor. Sometimes, this cost is obvious and at other times, not so much. To make it easier for you, let me illustrate it with an example: if a banknote from a debtor promises to transfer to the creditor a value of $100, the creditor will receive $100—not $91 or $99.99—but always $100. Building a cashless society will help us achieve this. Mehul Desai in his book "August of Money - The Quest for Cashless Society" states that there are more ways than one to skin the proverbial cat, but yes, building a cashless society is the only possible solution to remove all the discrepancies that lie in the current system.