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Commentary by our President, Keiichi Shimada
I sometimes leave home without my wallet. There are a variety of reasons this may happen, whether I accidently left it in the pocket of my weekend clothes, switched bags and forgot to move it over, or simply passed out the night before and forgot it somewhere in my home. I may also forget my commuter pass, which puts me in quite a bit of trouble at the ticket gate since I can’t buy a ticket at the station, and so have to hurry back home. Otherwise, I may take the train using my commuter pass and head into work before finding out that I don’t have my wallet, then have to skip lunch.
Recently though, even if I forget my wallet I don’t feel as though I’m in such dire straits. Now, as long as I have a smartphone with me, I can go to a nearby convenience store and use cashless payments to get around the problem. Speaking of which, I feel like I don't have much cash in my wallet these days, and I spend less time waiting in line for the ATM. More and more electronic money and QR code payment systems are appearing.
I first heard the term “electronic money” about a quarter of a century ago, but the spread of cashless payments in recent years feels like we’re entering a whole new world. So what is electronic money? My first time hearing about it was when a financial institution in the United Kingdom started a service of depositing money onto IC cards for making small payments. An internal investigative team was formed to meet the developers and talk to them. I was a part of that team. The service, which had just been launched, was excellent. Money could be deposited electronically from your bank account to your card using an ATM. No change, no wallet. Using a calculator-like terminal with a card slot at both ends allowed electronic money to be exchanged between cards on the spot, and a telephone with a card slot allowed money to be transferred across regions. I was impressed and completely for the idea of converting money into electronic data, thereby freeing up payments from physical constraints.
However, the service did not become widespread. First of all, it was clear that the electronics technology of the time could not keep up with the advanced concepts and mechanisms. The electronic monetary information deposited on the card’s IC chip was protected by complicated public key encryption technology, but it was too harsh for an 8-bit microcomputer mounted on the IC chip to perform the calculation and transaction processing, taking about eight seconds for a payment to go from start to finish. Eventually, as the Internet became more widespread and communications technology got ahead of the concepts, the service of sending money over telephone lines became more disagreeable rather than convenient. Terminals and systems needed to be type approved by a management body established primarily by financial institutions in London, and the business model of charging a large fee for said approval was also a problem. There was also friction between financial institutions, who placed priority on investment recovery, and system developers, who were investing more in upfront development before services became widespread.
In the end, although London’s financial institutions digitized our daily payment activities, they continued to stick to protecting their traditional markets and revenue streams rather than fundamentally changing people’s lifestyles, business practices, and financial service models. Participating companies focused too much on technological superiority and failed to address the critical issue of the “eight second payment time.” Or maybe they knew, but thought it would be acceptable to reduce the time from eight seconds to about four seconds.
But what about today’s cashless payments using QR codes? No robust IC chips are used, and there don’t seem to be any complex rules between IC chips, terminals, and systems. I’m a little worried about security, but the simple and convenient microsecond payment methods are rapidly gaining in popularity. In other words, both ourselves and financial institutions at the time lost sight of the idea of providing service value to users. Of course, since it’s money-related, safety is obviously important, but the point is a balance between technology and ease of use—we understand that now and can take the time to calmly analyze the issue, but we’re a bit late to be starting that at this point.
Finance has been serving as a lubricant for economic and social activities. Here, the appropriate financial services have been provided for individuals to buy houses and cars, companies to invest in facilities and equipment, and to buy and sell goods. What’s next? As individuals shift their focus from materials to events, for business management, the importance of responding to environmental and social risks will increase in addition to financial risks such as liquidity. So, what is the function of finance here? In considering this, it is important to strike a balance between safety technology and user-friendly mechanisms and to provide service value to users.