Tuesday, 16 April 2013

The Future of Payments Part Two: Digital Cash

What is money? The coins and notes in your wallet or purse? The numbers on your bank statement? What currency? GBP, euros or US dollars perhaps? Computer numbers? Digital currency?

Take Bitcoin for example, which since 2009 has grown to become the largest alternative currency and has the monetary base in excess of $1bn (as at April 2013) and already thousands of merchants accepting Bitcoins instead of regular currency. Unlike currencies Bitcoin doesn’t rely on a nation’s government or central bank, rather Bitcoins are “mined” by computers in a digital version of gold mining.

Early security issues and also concerns about the way in which Bitcoins are created has made it difficult for the average consumer to put their trust in the currency. But Bitcoin is gaining momentum and nascent integration with traditional banking methods is helping. Recently French regulators gave approval to Bitcoin-Central, a payment service where customers will be able to deposit their funds into the service in either euros or Bitcoins and convert the funds easily between the two currencies. How long before you can take out a Bitcoin loan?

Amazon are set to launch their own Amazon Coins virtual currency in Q2 2013, for use in purchasing games, apps, content, and in-app purchases on its Kindle Fire platform. How long before you can buy a book with Amazon Coins? Even the Canadian government is getting in on the act with Mintchip which, unlike other digital currencies, is backed by real money, in this case the Canadian dollar. Mintchip allows secure transactions to be performed without an intermediary - that’s right, no bank, no payment processor. Some might argue Mintchip isn’t really digital money, it’s simply about making official money easier to use online.

Right now there’s a lot of public debate about digital money, especially Bitcoin. Is it a fad or something more serious? Only time will tell. But whether it’s Bitcoin or another option, you can bet that digital money is here to stay and very soon a good proportion of consumers will be likely to be transacting in digital currencies in one way or the other. For businesses the question is how and when to join this revolution? Creditors and the debt industry participants should watch this space carefully – the ability to purchase mainstream goods or services and pay bills with some form of digital currency is likely to be just round the corner.

By Carlos Osorio - Director, e-collections and payment services, 
TDX Group 

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