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What The Future Of Money Means For Real Estate

When the Ming dynasty popularised bank notes in the 14th century, it revolutionised commerce. Merchants no longer had to carry around heavy metal coins, and the government’s guarantee of value printed on paper money hugely expanded the influence of the state.

Today a similar revolution is happening: physical money is disappearing. The rise of electronic payment methods is having a fundamental effect on real estate, particularly retail.


This week the British Retail Consortium revealed that electronic payments account for more than half of all transactions in the U.K. There have been predictions that the Netherlands will become the first cashless society, maybe as soon as 2030. Sweden and Denmark are not far behind. Even the U.S., where cash is more persistent, is moving that way — in a survey in April conducted by bank ING, 38% of U.S. respondents said they would be willing to go cashless.

The weakening of cash's power has created stores that need virtually no staff, and technology allowing easier electronic payments is liberating small retailers and traders from needing stores at all. The next step will be bespoke cryptocurrencies created by retailers themselves.

It behooves retailers to get on board the electronic payment train: when consumers do not use cash, they spend more. Swiping a card or clicking on a purchase does not feel like spending money the same way handing over cash does. This intuitive feeling is backed up by academic research. Professor Eric Luis Uhlmann of the INSEAD institute in Singapore conducted a series of psychological experiments that showed we are more attached to physical cash than items of the same value.

Niro Sivanathan of the London Business School recently said that paying for items with a contactless card “anaesthetises the psychological pain that accompanies payment, seducing us into splashing out”. The Bank of England last month suggested that the popularity of contactless cards was helping to fuel the rapid growth in consumer debt.

With that in mind, Amazon’s new Amazon Go grocery stores could have an exponential impact in getting consumers to spend more. Still in the beta trial phase, these stores do not have cash registers or ask the customer to undertake a payment transaction.

The complex series of cameras and sensors knows what shoppers have taken, and automatically debits their Amazon accounts. It is the ultimate "frictionless" consumer experience, a buzzword cropping up more frequently.

Contactless payments have overtaken cash in the U.K.

Alongside deals such as the purchase of Whole Foods, the trial shows how Amazon is looking to go beyond online or physical retail and create a business that dominates the sector as a whole.

“It further emphasises the move from different retail channels, to omnichannel, to just retail,” said Mark Robinson, founder and property director of convenience shopping centre owner Ellandi.

Writing on the stores, Andrew Melville, strategist and consumer experience designer at product and service development firm Continuum, also said Amazon is blurring the boundaries between different types of retail. He thinks Amazon will look to provide the technology it is developing to other retailers in exchange for them using its Amazon Payments platform.

“[This would] generate millions of additional customer interactions and potential purchases on every day, not to mention the new revenue from processing fees”, he said.

The technology would also ease any shift by Amazon into the world of physical retail by drastically reducing the second-largest cost for retailers after rent — staff. Reports have indicated that a 2K SF Amazon Go store could be staffed by as few as six people. That trend is flowing even to discount retailers, which historically are more cash-oriented.

“It’s fair to say that one of the ways discount retailers are looking to reduce their margins is to take out some of the fixed cost of staff,” Robinson said. “As you do become more and more of a cashless economy people become more comfortable interacting with machines and just waving their credit card. Retailers can invest in automated checkouts and that can help their margin.”

But this comes with a warning. “I’m reading a book that I’m sure a lot of people have read called 'Rise of the Robots,'” Robinson said. “It’s got an anecdote about Henry Ford touring a newly automated factory with one of his union reps and remarking, ‘this is great, now I won’t have to pay all of those union dues’. To which the rep snapped back, ‘yeah, but who’s going to buy your cars?’”

Payment tools like iZettle are allowing small traders to take card payments.

Another trend is the rise in “over the top” payment methods, which are helping smaller merchants like market traders who normally cannot take card payments. These methods include Square or iZettle, where merchants can attach a small device to their phones and take a card payment, or the myriad systems growing up that allow users to transfer money via SMS message or through a social media app.

It is an article in itself, but one such system, Mpesa in Kenya, has revolutionised the economy, allowing people from farmers to retailers to do business together.

It could help all types of retailers escape the confines of stores.

"Because they get around having to install expensive terminals, these payment methods are great for people like small market traders, especially those selling goods that cost more than the amount of cash people usually like to carry," said Matt Harrison, director of strategy at innovation consultancy Seymourpowell.

Over the top payment systems that rely on people transferring money via apps or text message in particular will fundamentally alter the relationship between vendors and buyers and remove the power of the state. "It’s about trust," Harrison says. "These new payment systems can emerge if buyers and sellers both believe they're in safe hands.

"It's interesting to see some of the behaviours that have emerged around contactless payment – like when bar staff show you the amount on the machine and ask permission before making the payment in front of you. The more frictionless that payment becomes, the more you have to trust the person you're dealing with."

The rapidly evolving world of cryptocurrencies will also have a huge impact on retail, and alter the relationship between brands and retailers and their consumers.

Bitcoin is the vanguard, but $500M has been raised through Initial Coin Offerings this year, where companies allow investors to buy bespoke cryptocurrencies, based around blockchain technology.

Perhaps the most interesting planned ICO is that being undertaken by social media network Kik, which is planning to sell an as-yet-unspecified amount of its own currency called Kin. In a nutshell, this would allow users of Kik to pay other users for services or content they produce — funny videos, information, that kind of thing. If the network and the currency become widely used, Kin would start to have a real world value.

Harrison said ICOs would have great appeal to traditional real-world retailers and could strengthen the bond with consumers.

"There's a price war going on with discounters and online retailers and brands are feeling the squeeze from that. So they are desperate to speak to consumers directly.

"That’s why Unilever paid $1B for Dollar Shave Club, not just for the brand, but to understand that direct to consumer model. That takes you to payment models like direct debits, or even reordering buttons like Amazon has been pioneering."

As Amazon continues to expand and grow market share, and cryptocurrencies mature, the idea of it setting up its own currency seems very plausible.

A private party for Chinese shoppers at Armani in Marseille.

The decline of cash is also allowing retailers to access an entirely new kind of global consumer who is starting to travel the world and is ready to spend — the emergent middle class of China.

More than 1 billion users are using mobile payment systems Alipay (part of the group that includes online retailer Alibaba) and WeChat Pay (part of one of China’s huge social media platforms). They are widely accepted in China, and travellers will increasingly expect to be able to pay with them abroad, and favour retailers that accept this model.

This week Tencent, the Chinese firm that owns WeChat, teamed up with German payments system company Wirecard to launch WeChat Pay in Europe. Alipay launched in Europe in 2015.

"Right now the problem is many Chinese travelers don't have the right payment instruments,” Wirecard Executive Vice President of Global Product Strategy Markus Eichinger told CNBC ahead of the launch. “Shopping is a substantial part of the tourist journey. For every retailer targeting Chinese customers in the segment of luxury, of travel, of entertainment, this is a must-have payment option.”

Further into the future, methods of payment will become so sophisticated that they will not just help us to buy things, they will help to inform what we buy.

"The first wave of digital payments was all about convenience — making it faster and more convenient to pay: no more having to have physical notes and coins in one's pocket,” Mason said.

“But now consumers will expect even more when paying digitally: Is the payment provider using data and machine learning to add additional value for me, beyond simply purchasing the product or service? Just as Amazon embedded recommendations, reviews and related products into every purchase, expect to see this level of transparency come to purchases made in the physical world.”

When the Ming dynasty introduced those first bank notes, it went brilliantly. But then the state’s central bank did what central banks have done throughout history, and printed too much money. Divorced as paper was from the perceived inherent value of precious metals, people lost faith in it and its value crashed.

The move away from cash will have similar teething problems. The value of cryptocurrencies is incredibly volatile since they are removed from any form of state guarantee. Drastic reductions in staff brought about by automation could put millions of low-skilled retail workers out of work. And contactless payments, as the Bank of England pointed out, fuel consumer spending in a way that is not great for societies.

Still, cash is fading away, changing economies, retail and real estate in a way that can never be undone.

CORRECTION, JULY 15, 12:20 P.M. ET: An earlier version of this story said Amazon Go automatically debits customers' Amazon Prime accounts. Prime is not required to use Amazon Go. The story has been updated.