![By Andre Cappon By Andre Cappon](/_img/autori/andre_cappon.gif)
Money is information - a symbol of trusted, transferrable value. We transfer this abstract symbol, "money", to each other via payments.
The physical forms of money and payments systems have evolved, in tune with the technology of the times: metal coins, paper, telegraph/telephone/telex and now electronic signals via the internet and cellular phones.
The internet, the mobile phone/smartphone, and data encryption technologies are rapidly changing the world: they did not exist 20+ years ago and today they are driving digital transformation everywhere. The digital transformation of payments is happening right now.
Today, all payments systems are part of the overall banking system architecture: the central bank, member banks, payment service providers, merchant Point-of-Sale (POS) systems, and payments are generally executed either using traditional cash (bank notes and coins) or with "account-to-account" transfers, i.e., "Debit the Payor, Credit the Payee".
Digital payments are already here, digital cash is coming
Over the years, many physical cash transactions have been replaced by the now-familiar debit and credit card systems. And a recent explosion of digital payments challengers (Apple Pay, Google Pay, PayPal, Zelle in the US e.g.) are now competing for territory in the payments space.
Is cash doomed? Not likely, because it is too useful to give up!
Cash offers many advantages, such as simplicity, privacy (within KYC-AML constraints) and near-complete interoperability (everybody can pay cash and accept cash).
The cost of operating cash (printing, safekeeping, counting, ATM networks) is high, however. Can we marry cash and modern technology to achieve an efficient digital form of cash?
Account-to-account digital payments are already widely accepted, but they require Payor and Payee to disclose and share credential information (name, IBAN, credit card number, phone number, email, address, personal ID etc.) in order to complete the transaction. They offer no privacy and create risks such as fraud or identity theft if these credentials are stolen (such as when a company's systems are breached). Every day, we read about hacking of credit cards and other payment systems - and the cost in time and money to banks, merchants and consumers for each fraudulent card use is substantial.
Furthermore, account-to-account digital payments platforms tend to be "closed systems" - limited to a single institution like PayPal, or to a network of institutions, like Zelle. They are not easily interoperable - people need multiple accounts and a growing number of apps on their phone to send and receive money to each other.
Could a digital cash-like solution combine, or even exceed, the advantages of cash and the benefits of electronic payments?
A "wish list" of features would surely include:
· Payment in "legal tender" (national currency and/or USD or Euro, e.g.)
· Like cash, protection of Payor and Payee privacy, but within KYC/AML (Know Your Customer/Anti Money Laundering) rules
· Full interoperability across existing payments platforms
· Cybersecurity, safe from hacking
· Available 24/7 - ability to transmit money quasi-instantly, at any time
· Trustworthy - use proven existing national payments or bank infrastructure
· Potential for cross-border transactions
An innovative fintech solution: Vaiu
Vaiu Global, a US-based fintech company, founded in 2019 offers a technology solution for cash-like digital payments:
· With embedded Vaiu technology, a mobile banking app withdraws money from the Payor's bank account, credit card, or "e-wallet", then generates a token or "money packet", represented by a one-time, single-use, simple code (Example: ABC123).
· The Payor communicates this code to the Payee. The code may be transmitted in several ways: scribbled on a piece of paper, via text (SMS message, email, WhatsApp), read over the phone, or other smartphone technologies (QR or bar code or NFC tap if in person - or directly between apps.). The code is received by, or entered into, the Payee's mobile banking app, and the money is instantly available, transferred via the existing payments infrastructure.
· Think of Vaiu as a "digital ATM" or a "digital cashier's check" that can be issued from a smartphone.
· Vaiu offers privacy to the Payor and Payee, while the payment remains auditable by authorities. Vaiu is fully KYC/AML compliant, and the banks follow their established procedures to vet their customers and to monitor payments above a threshold.
· Vaiu is interoperable across various payment systems and platforms
· Vaiu tokens are stored at a central trusted hub. This function could be performed by today's retail payments clearinghouse or by one of the banks.
Other Benefits of the Vaiu Platform
Using Vaiu is much cheaper than traditional cash, since printing, safekeeping and counting are no longer needed.
Market research suggests customers will pay a small fee for the convenience of such "digital cash" payments, a possible source of incremental revenue and enhanced customer loyalty for banks and payment service providers
The Payor may also incorporate specific validity conditions in the token: for instance, you could send money to a child but want to make sure it is valid for a specific period of time or only near the child's school.
Merchants who accept the token can correspond with and market to the customers who paid with a Vaiu token without ever knowing the customers' account information - or even contact information.
Vaiu technology can also serve the unbanked: an unbanked person could pay a merchant in traditional cash and receive a Vaiu token that can subsequently be used as digital cash.
Digital cash has many advantages over traditional bank notes. Your cash can no longer be easily lost or stolen; when your wallet is empty, you don't need to borrow money from friends or family nor to make an emergency trip to the nearest ATM. Your mobile phone is your wallet or ATM, so there is always cash in your pocket if your account has money.
Merchants benefit as well by using a "digital cash register". Bills are paid in full, guaranteed, and time is saved with every transaction - no waiting for customers to find and count their notes or to make the proper change. The merchant's receipts are automatically deposited in his bank account.
For banks, Vaiu technology will make it easier to comply with AML rules. For the Central Bank, it will be possible to monitor money flows and velocity more accurately
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Vaiu is actively pursuing the Eastern European markets in which cash payments are still common: a pilot program is soon starting in the Balkans. A major international bank present in most of the Central and Eastern European countries has agreed with Vaiu to implement the digital cash technology in one of the smaller countries which provides an ideal testing ground: the population is still using cash as a predominant form of payment, cellular phone coverage is extensive and almost everybody uses smartphones Several local e-merchants, restaurant chains, taxi fleets, etc. expected to join this pilot and create an ecosystem for digital cash.
Romania is of great interest to Vaiu. A roundtable conference with BNR and several key players in digital payments was recently held, and more events are expected.