Your cash has never been more valuable
Amazon is set to launch its Amazon Coin this month. It’s an interesting move and one that paves the way for other retailers to soak up a lot of cash with very little effort.
There’s nothing new about companies offering gift tokens, but this is currency — and word has it that several other large brands are developing their own versions to be wrapped in their own corporate identities.
As a customer, you’d be offered cheaper goods for using their currency. For example, with Amazon Coins, you might pay less for a product than if you paid with cash.
So why do companies want to do it?
Well, it’s the simple reason that companies want your cash. In an economy where nothing is certain any longer, cash is king. Cash flow, however — as any business owner will attest –- is even more valuable.
As a company, having your own corporate currency solves three big problems around cash flow:
1 – No transaction fees
If I’m a retailer taking a lot of payments, I will be spending millions — if not billions — of dollars on transactions fees.
Companies find this irritating. Large retailers already spend millions trying to find the cheapest transaction price to use in real time.
The entire transactions infrastructure is built on lots of organizations taking a small cut for moving money around quickly. It’s bogged down with regulation that, for a global company, is oh so very dull.
2 – Fraudulent payments
Big retail companies have to foot the bill for a lot of fraud. They are victims of fraud because they can’t tell the difference between a legitimate and a dodgy transaction.
By owning a digital currency, companies like Amazon could tighten the controls over the transactions they will accept. And if fraud occurs, they don’t lose cash –- they lose their monkey tokens.
3 – They can use your cash
This is the big one –- and it’s called “breakage”. This is a term used in accounting at gift card companies when people buy tokens or vouchers and never use them. This is profitable for a company, which relies on the fact a certain percentage of people will never reclaim their money. Accountants have been confused as to how they should account for the money.
Last month, one of the most widely used versions of digital currency –- the Oyster Card –- was accused of hoarding £53m in unclaimed ticket money. Those people who had tried to reclaim their cash found it took a long time to do so and had to go through a very hard process.
Having a pot of £53m of other people’s money is quite convenient for a large business. They know people won’t ask for it back all at once or — if they do — the company can take its time in giving it back.
Guarding or lending the cash stash?
So … companies that are “watching over” big pots of cash can use the money for other things, like lending. Now banks would normally pay you interest for the convenience of using your cash to lend to other people. Breakage doesn’t go there. Nor will you know where your money is being lent (though, to be fair, you wouldn’t with a bank either).
Utility companies are notorious for taking direct debit payments larger than the bill you owe. What happens to that money while it’s in their care? You’d have to ask them. But lending is a very attractive option for companies with cash they have access to.
Is breakage fair for the consumer?
It depends how quickly you believe people should give your money back. If it’s quickly, the answer is “no”.
But it’s not illegal.
Could it be more transparent? Yes.
Could it be easier to see how much money you have in your accounts? Yes. (There might be an app opportunity in that.)
Is it profitable for the company? Yes.
Could it be better regulated? Probably.
Open vs closed
Consumers are much wiser to the benefits and drawbacks of technology these days. No one wants inconvenience. So Amazon and friends will have to be vigilant over how useful it is to people in their general shopping … not just on Amazon.
The latter assumes (as many technology companies have wrongly assumed before) that the company will be the dominant player in their market whatever the weather. As we have seen, that mindset quickly becomes expensive when there’s a more convenient technology around the corner …
In this case, there is a tightrope to walk in launching currency for convenience: Too locked down –- people will not like it and something else will come along. Too open –- there’s a whole world of trouble around rates, inflation and acceptance, so companies would need an infrastructure (and philosophy) to cope with that.
Don’t disregard cash –- liquidity counts
Make no mistake: cash is valuable. It will be around for a long time yet. Why would you ditch a system that works? Companies have realized — as banks did a long time ago — that whoever controls liquidity is in a good position.
Companies are keen to use your cash. Why? Because it’s more valuable to them than ever.