The Future of Cash

By Catherine
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By Catherine Bolgar

Businessman touching the screen about currency icons

Digital payments are growing, with new methods and technologies proliferating and the number of transactions skyrocketing.

Non-cash transactions grew 8.9% to 373.3 billion in 2014, according to the World Payments Report 2016 published by Capgemini and BNP Paribas. Use of checks is down, but use of cards—especially debit cards—continues to grow, up nearly 12% in 2014.

“It isn’t just the card: everybody is convinced they have invented the payment mode of the future,” says Christophe Vergne, leader of the global cards and payments center of excellence at Capgemini. “Regulators are fostering that to create competition, innovation and boost the market.”

Indeed, many governments would love to reduce the use of cash, in order to crack down on criminal activity. France recently lowered the limit for cash transactions to €1,000 from €3,000. Other European Union countries also have limits.

“For the last three decades I have investigated the large-scale use of cash, which is the preferred medium of exchange for illegal transactions ranging from the production and distribution of illegal goods and services (drugs, prostitution, etc.) to tax evasion, and how large-denomination bills are primarily used in these activities,” says Edgar L. Feige, professor of economics emeritus at the University of Wisconsin-Madison.

Many CurrencyHowever, bank notes and coins are necessary “for the safety of the entire financial system,” he says, noting that a digital system is vulnerable to hacking. “That’s why it’s even more important to have a physical means of payment, as a safety backup system.”

The security of digital payments has greatly improved, thanks to tokenization, which swaps the real card or account number for a stand-in, explains Mike Cowen, U.K. and Ireland head of digital payment products for Mastercard. A thief who gets hold of the fake number at the point of sale can’t do anything with it.

The current global chip and PIN technology, called EMV, “did a fantastic job for us of massively reducing fraud at the point of sale,” he says. “Tokenization takes that same EMV technology and enables it to be used for online payments as well. It means that online payments can be as secure as those at the point of sale.”

The most important aspect is that tokenization technology is scalable. E-wallet providers don’t have to approach each bank to enable the technology; they just have to connect to the payment networks, such as MasterCard.

“Now that we have tokenization in place, it’s actually designed so [that] smaller, niche players can build digital services that require digital payments to enable consumers to buy things within their digital channels,” Mr. Cowen says.

Another huge trend, he notes, is contactless payments, which allow for payments using mobile phones as well as cards.

By 2020, every point of sale in Europe will be contactless-enabled,” Mr. Cowen says.

The Internet of Things will expand the possibilities. “Fitness bands are a sensible thing to build payments into. They have a means of monitoring your life signs, which is one way to authenticate,” Mr. Cowen says. “We believe there will be a huge wave of innovation on the back of this.”

The Internet of Things “will be a revolution,” combining such things as smart meters with digital payments, Capgemini’s Mr. Vergne says. “Tomorrow you will be able to pay as you use. Imagine you don’t pay electricity every month, but every time you reach three kilowatt-hours. Systems could cope with that.”

Man paying with NFC technology on mobile phone, in restaurantThe overall trend is toward smaller digital payments. “The marginal cost of transactions is decreasing to such small amounts that it economically makes sense to pay €1 digitally,” he says. “The more the volume grows, the more the marginal cost decreases and can compete with coins.”

The transaction cost of cards is 0.20% to 0.30% interchange plus merchant service fee, plus an annual fee for the card holder, Mr. Vergne says. The cost of cash, by contrast, is higher: between 0.5% and 1%, because of the burden of counting , storing  and transporting it, plus the risk of theft. Individuals don’t pay that cost directly. “Society is paying for all this infrastructure of maintaining cash,” he says. However, he notes, despite the costs and the explosion of digital payments, the volume of cash in circulation continues to grow.

“As for the notion of the advent of a cashless society coming about,” Dr. Feige says, “the truth of the matter is [that] cash holding and cash use have increased, despite digital payments. I would predict confidently that cash will survive as a medium of exchange for many years to come.”

 

Catherine Bolgar is a former managing editor of The Wall Street Journal Europe, now working as a freelance writer and editor with WSJ. Custom Studios in EMEA. For more from Catherine Bolgar, along with other industry experts, join the Future Realities discussion on LinkedIn.

Photos courtesy of iStock

Sensors in the Age of Industrial IoT

By Catherine
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By Catherine Bolgar

The use of sensors, especially in the Internet of Things, is creating a mountain of big data. This infographic illustrates how to manage the data generated from sensors, including best practices for identifying which data streams are useful as the volume of data continues to explode.

Click here to see a larger view

dassault_infographic_preview-full-sensors_190816
 

Catherine Bolgar is a former managing editor of The Wall Street Journal Europe, now working as a freelance writer and editor with WSJ. Custom Studios in EMEA. For more from Catherine Bolgar, along with other industry experts, join the Future Realities discussion on LinkedIn.

Engineer-to-order Can’t Succeed Without  the Internet of Things

By Catherine
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By Catherine Bolgar

As usual, the Internet is busy disrupting industries: this time, it’s manufacturing. Since the industrial age began around 1760, manufacturing has strived for efficiency through standardization. The Internet—especially the Internet of Things—is taking that apart by allowing for greater personalization.

Making unique products doesn’t mean a return to the days of handmade artisanal goods. Instead, it means multipurpose manufacturing systems and flexible production, often executed by automation and robots that assist human workers.

“Machine tools are typically restricted in their functions and the types of material they can handle,” says Karl Hribernik, department manager at the Bremer Institute for Production and Logistics, or BIBA, in Bremen, Germany. “Production in the future will be more flexible. Cyber-physical, multipurpose production systems and manufacturing cells are the next generation of industrial machinery. In the Industry 4.0 paradigm [alluding to Germany’s initiative to integrate the Internet of Things (IoT) in industry to usher in rapid technological change in manufacturing], distributed resources will make use of local capabilities in flexible supply chains.”

Such flexible systems will rely on the IoT as well as on robots.

Robots can be reprogrammed to do different tasks. So engineer-to-order will make extensive use of robots. It can’t be restricted to single-purpose machines,” Mr. Hribernik says.

Industrial engineer

The communication among robots, machines and humans relies on the Internet of Things. Sensors are getting cheaper even as they are able to do more, with more precision.

The Industrial Internet Consortium, an international group setting the architectural framework and direction for the Industrial Internet, including operating two dozen test beds, launched a new test bed last year using the IoT to track everything on the floor of a factory—tools, parts, work in progress, people.

“There are two reasons,” explains Richard Soley, Massachussetts-based executive director of the Industrial Internet Consortium and CEO of Object Management Group, a technology standards consortium. “We can make more efficient use of the factory floor if we know where everything is. People on the floor spend half their time looking for the right tool. So if the system knows where the tool is, it can say, ‘Tool C is behind you, four meters on the left.’ We also know which parts of the factory floor are likely to be free soon, so we can move in the next part to be worked on. It increases human and machine efficiency. It’s reinventing factory-floor management and greatly enhancing factory-floor safety.”

The communication with workers increasingly is taking place via a worker’s personal smart phone, he adds. “It has sensors in it, it communicates on 25 different communication bands and it’s something you carry everywhere. That is going to be the most ubiquitous IoT communicator.”

The dream in the manufacturing space for decades has been to do what was called flexible manufacturing: changing with short or no notice, Dr. Soley adds. Retooling an automotive production line can take several weeks. So, for example, one motorcycle maker doesn’t retool at all, but builds each motorcycle separately.

“They know more about their customers because of the IOT—tracking customers and predicting what they need,” Dr. Soley says. “Because they meter the production line, they know what’s in production now and what they could be producing on the fly. Essentially they make every order differently. It means they can respond more rapidly to customer demand, offer more options and products and stay ahead of competitors.”

As this approach takes hold, he adds,

We’re looking at a future not far away in which everything you build is completely personalized.”

Indeed, an important aspect of the IoT isn’t just in the making of products but in monitoring  their entire life cycle.

The IoT provides “better information on how products are made and used,” Mr. Hribernik says. “It allows a more granular and precise monitoring of the quality of products being manufactured. If you feed that back into design, it allows engineers and designers to improve design for manufacturing and quality. In the middle of a product’s life, investigating product usage can help detect faults. If companies get that feedback via the Internet of Things, then they can iterate product design and manufacturing more quickly. It also can allow them to provide tailor-made services, like predictive maintenance, during the product’s life. And at the end of life, if you know how a product was used, what parts it was  made of and which parts were replaced, you can better achieve recycling, refurbishing or reuse.”

“It’s a revolution/evolution from mass-producing automated lines to more flexible production based on cyber-physical systems,” Mr. Hribernik says. No matter how refined robots are, they are still far from the flexibility and adaptability of humans. The best practices use robots and automation to augment human workers, by doing things that are too repetitive, strenuous or dangerous for people.

“We see a potential for collaboration with robots to help older workers and keep them in the workplace, maintaining their jobs and also their experience in the company,” he says.

Although awareness and acceptance of IoT and engineer-to-order processes is increasing, “manufacturers are still very, very careful about sharing data out of their production lines with machine-tool providers,” Mr. Hribernik says. “The B2B models need to evolve before widespread acceptance in industry will make an impact on manufacturing.”

 

Catherine Bolgar is a former managing editor of The Wall Street Journal Europe, now working as a freelance writer and editor with WSJ. Custom Studios in EMEA. For more from Catherine Bolgar, along with other industry experts, join the Future Realities discussion on LinkedIn.

Photos courtesy of iStock



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