In this second chapter of our three-part series review of JP Morgan’s report titled “Blockchain, Digital Currency and Cryptocurrency: Moving into the Mainstream?” (hereinafter referred to as “the Report”), we will be exploring the increasing use of alternate i.e. non-cash payments. The Report notes that based on statistics compiled by the Bank for International Settlements (BIS), emerging markets led by China and India has propelled the global rise in the use of alternate payments whereby the use of this mode of payment in both the countries has increased by more than fivefold during the period from 2014 to 2018. 

Rise of Alternate Payments in the U.S

In the context of the United States (U.S), the Report highlighted the results of a study conducted by the Federal Reserve, that was released in December 2019 whereby the study found that the global trend in the rise in the use of alternate payments is also reflected in the U.S. The Report noted that the value of alternate payment transactions in the U.S rose from US$143.6 billion in 2015 to US$174.2 billion in 2018. 

As the U.S finds itself in a state of national emergency due to the Covid-19 pandemic which is increasingly engulfing humanity in a global healthcare crisis, the use of alternate payments may be a saving grace of sorts as it dispenses with the need for the handling of physical banknotes which could potentially exacerbate the extent of the pandemic as the exchange of banknotes in particular those which have been handled by Covid-19 carriers may render these banknotes to end up as an inadvertent medium of transmission of the virus. Same goes for the rest of the world.

Insightful Case Studies of the Uses of Alternate Payment

One of the case studies discussed in the Report is the use of alternate payment in China’s cashless economy whereby the sheer scale of the Chinese cashless economy was highlighted as a critical point which renders it to be a prime choice for study. The Report highlighted the meteoric rise of electronic commerce (e-commerce) transactions in China which exceeded the RMB10 (approximately US$1,43 trillion) mark in 2019 whereby this represented a 400% increase over the period from 2015 to 2019.  In particular, the Report noted that the business-to-consumer (B2C) and peer-to-peer (P2P) sectors of the Chinese economy would likely lead the way in terms of the national adoption of stablecoins. 

Leading by example in this regard is the People Bank of China (PBoc) which has in January this year completed the top-layer design and joint testing of its soon-to-be-released central bank digital currency (CBDC). Designed to function as a digital yuan, the experimental testing of the PBoC’s CBDC is expected to transcend the Chinese central banking system to include other sectors such as transportation, education and medical treatment, among others.

Another case study discussed in the Report is the use of QR code loyalty programs in Japan which has been experiencing rapid growth due to two factors which are namely, the 20% standard rebate for loyalty program operators such as e-commerce platforms as well as the country’s negative interest rate policy. The Report noted that the increasing use of loyalty points in Japan have rendered such points to be more and more akin to pseudo-money in the country. Although the changing discount rates and presence of expiration dates for loyalty points mean that they fail to fulfil the criterion of a currency (i.e. value scale, value preservation and distribution means), the expanding loyalty points ecosystem in Japan have resulted in loyalty points issued by Japanese companies to have improved distribution functions whereby this in turn have enabled such points to be used as payment measures in the country. 

In this connection, the Report highlighted the possible issues which may arise from the use of loyalty points in this manner including the possible impact on the national monetary policy as well as security risks pertaining to user protection. Aiming to offer a better alternate payment option for Japan, JP Morgan is targeting to launch its Interbank Information Network (IIN) in the country sometime in 2020. With 80 Japanese banks having already expressed their interest to be part of the IIN, the JP Morgan’s blockchain-based network looks set to be a game-changer for the alternate payment landscape in the Land of the Rising Sun.

Alternate Payment for a Cashless SEA Economy

In the context of Southeast Asia (SEA), Singapore is the undoubted leader when it comes to the use of alternate payments with the government having set itself the target of turning the economy of the city-state into a cashless one by 2025. Based on statistics released by the Singaporean government, 80% of money transfer transactions in the country are undertaken in an electronic manner and 60% of merchants in the country have put in place the necessary mechanisms to accept electronic payments from their customers. Given these impressive sets of figures, the Lion City looks to be very much on track to attain its target of transforming itself into a cashless economy by 2025.

Across the Johor Straits, the Malaysian government has embarked on a cashless economy transformation of its own through its e-Tunai Rakyat (people’s e-cash) program. Having commenced in January this year, the program entails the Malaysians government making a one-off payment of RM30 (approximately US$7.37) to citizens aged 18 and older who are earning under RM100,000 (approximately US$234,000) a year upon the successful completion of their registration as users of any three of the selected electronic wallet (e-wallet) operators in the country i.e. Grab, Boost and Touch n Go. With electronic transactions constituting only 5% of daily payments undertaken by locals as of early this year, the Malaysian government is hoping that its RM450 million (approximately US$110 million) investment through the e-Tunai Rakyat program will promote the use of alternate payment systems for electronic transactions carried out by Malaysians by increasing the number of digital payment users in the country to 15 million people.

Alternate Payment As The New King

In an increasingly digitized world where the incessant drive for economic progress and development means that time is always at a premium, the use of alternate payments which warrants speed and efficiency in a manner which complements the general drive towards digitization is very much a no-brainer. Fair to say, cash is no longer king as it has been dethroned by alternate payments which present itself as the new king of the financial sector in this day and age of digital revolution.

Reference:

1. J.P Morgan, Blockchain, Digital Currency and Cryptocurrency: Moving Into the Mainstream? (21 February 2020). Accessible at https://markets.jpmorgan.com/research/open/url/t59R6MoBP2TUkWA_itSQBbfUlco1CmYnoNL3dA6WVSm82drJuOYLvdZIqDyuXyp-L4OrVEFw_eAu4UgzicsInqAwjcbKIQHiPfGEjPF2Rt5PKUltFmEKGQaC3DeLBoW7?action=print

2. CoinTelegraph, China’s Central Bank Completes Top-Layer Design and Joint Tests of Planned CBDC (10 January 2020). Accessible at https://cointelegraph.com/news/chinas-central-bank-completes-top-later-design-and-joint-tests-of-planned-cbdc

3. CoinDesk, JPMorgan Blockchain Payments Network Eyes January Japan Launch (16 December 2019). Accessible at https://www.coindesk.com/jpmorgan-blockchain-payments-network-eyes-january-japan-launch

4. Easy Credit, Government Announces Plans to Make Singapore a Cashless Society by 2025. Accessible at https://easycredit.com.sg/government-announces-plan-to-make-singapore-a-cashless-society-by-2025/

5. PYMNTS.com, Malaysia Promotes Cashless Society With eWallet Incentive Award (20 January 2020). Accessible at https://www.pymnts.com/news/international/2020/malaysia-promotes-cashless-society-with-ewallet-incentive-award/

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