Your Finances
As technology disrupts our financial system, here’s what to know to keep pace with the change
Tech and the evolution of money
When someone as ridiculously wealthy and technologically prescient as Bill Gates proclaims that the future of money will be digital, you can take that prediction directly to the bank. Unless, of course, your neighbourhood branch has been shuttered, replaced by an impersonal ATM. Not to worry, though, because by the end of the next decade, we probably won’t need to withdraw cash to pay anybody. In fact, paper money, which began appearing in Europe in the mid-17th century, may start losing its currency in the 2020s. Technological advances are disrupting the ways we spend, save and invest our money.
We reflect on what’s changed in the past 10 years and look ahead at how this new world will unfold.
CASH WON'T BE KING
A whopping 57 per cent of Canadians over 55 recently told an Angus Reid survey that they “hardly ever carry cash.” Instead, we’re purchasing goods and services with a credit or debit card. This move toward a cashless society will accelerate throughout the decade – Moneris, a tech company that specializes in payment processing, projects that, by 2030, almost 90 per cent of all purchases in Canada will be made using digital technologies. And it’s not just the tech-savvy millennials who are eschewing paper money: Moneris found that close to half of Canadians over 65 are comfortable using new payment technologies.
While that adoption rate may seem high, we lag behind countries like China, South Korea, Norway, Denmark and Sweden, all of which are on pace to phase out the use of cash within the next decade. Though a cashless society seems inevitable and has its advantages (who wants to carry wads of paper or piles of coins?), there are drawbacks. Many Canadians either steadfastly refuse to trust the safety of this tech or can’t access it because they live in areas with poor internet connections. And as it becomes easier to pay for things, will we sink into debt making more spontaneous (and often unnecessary) purchases? A Financial Times report cites “a worrying correlation” between countries with high rates of electronic payments and those with elevated levels of personal debt.
WHERE'S MY WALLET?
As money becomes digital, wallets will go the way of typewriters, landlines and address books. Instead of carrying cash, cheques and loyalty cards, increasingly we’re putting them in our e-wallets. These digital apps hold our banking and credit card information and store our rewards points, boarding passes and transit cards. We simply choose the method of payment on our phone and then tap the terminal.
Apple Pay, Samsung Pay and Google Pay, the three big players in Canada, are finding new ways to increase security, such as using biometric ID – voice and facial recognition or fingerprint scans – to verify purchases. This technology will soon revolutionize our entire shopping experience. In the not-so-distant future, we’ll simply walk into a grocery store, choose the
items and walk out. The objects we place in our bags will be photographed by in-store cameras, identified and totalled. You’ll pay through the store’s app, which will then send a receipt – no checkout required. Amazon Go is already testing cashier-less stores in the U.S.
THE DEMOCRATIZATION OF MONEY
As our reliance on paper bills and coins wanes (the venerable penny was removed from circulation in 2013), central banks, which mint and control the value of a country’s legal tender – so-called “fiat” currency – face an existential crisis. With the rise of alternative currencies, they no longer have a monopoly on money. Fiat money is already being challenged by the likes of Bitcoin, Ethereum and Litecoin – independent cryptocurrencies that are not backed or controlled by governments but by the users and the blockchain technology that powers them.
In its Imagine 2030 report, Deutsche Bank forecasts that as governments struggle with massive debt loads, central banks “could unravel in the 2020s,” causing the demand for alternative currencies to “be significantly higher by the time 2030 rolls around.” We’ve already seen alternative currencies make an impact in poor countries where an inept or corrupt government controls the value of its money to suit its needs. In Venezuela, for example, where inflation has rendered the bolivar worthless, some locals are buying goods with cryptocurrencies, which retain their value by operating independently of a government’s monetary policy. Yet, the adoption of one or all of these digitally based alternative currencies is no slam dunk simply because of their inherently alarming flaws: they aren’t backed by anything but the trust users place in them; their value fluctuates like a bubble stock (in the span of last year alone, the Canadian price of one Bitcoin went from about $4,500 to $15,300 and back down to $10,200); they’re vulnerable to hackers and scam artists; criminal organizations love them (ransomware demands are often paid in Bitcoin); they aren’t widely accepted as a form of payment; and there’s no guarantee that your virtual holdings won’t disappear into the internet ether one day.
Out of this murky crypto-world comes Facebook, with plans to launch Libra, a digital coin backed by actual assets. If Facebook or one of the leading tech companies manages to create a stable and standardized digital currency, it could prove to be a watershed moment in our acceptance of alternative currency.
Meanwhile, some central banks (including Canada’s) are discussing ways to fend off these upstarts by issuing digital versions of their currencies. Sweden’s Riksbank is considering offering digitized e-krona, while removing the equivalent in paper bills from circulation. Many Swedes, though, say they plan to keep a stash of old-fashioned krona on hand, just in case the electronic payment system ever crashes.
ROBOT MONEY MANAGERS
Traditional financial planners and brokers are already losing clients to robo-advisers, digital apps that provide advice while offering very low fees. (Robo-adviser fees begin at 0.5 per cent of your portfolio, compared to the one to 2.5 per cent usually charged by traditional money managers.) Using one of the many offered in Canada – Wealthsimple, Nest Wealth, BMO SmartFolio – you set up an account, enter your age, yearly income, risktolerance level and future goals, and the platform uses a combination of AI and algorithms to create an investing plan that matches your profile. While it’s often seen as a youthoriented technology, the average age of Canadian robo-adviser users is 44, suggesting that older investors are just as sick of high management fees as the young.
In Canada, robo-advisers currently manage $10.4 billion in assets, a number that is expected to nearly double in the next few years. And we’ll see more platforms geared toward specific demographics like Smart Money for Her, which offers advice tailored exclusively for women. The main criticisms of all robo-platforms are that they offer only anodyne advice, so they aren’t much help during sudden stockmarket swings. And you’ll still need the human touch if you want to execute complicated investment strategies.
In the future, as the robo-adviser field gets more competitive, look for companies to begin offering users expanded services, such as speaking to a financial planner.
STOCK MARKETS AND THE R-WORD
While robots can dole out investment advice, they’re not yet capable of accurately forecasting the stock market. Humans, of course, can’t either. As 2010 dawned, we were still in the throes of the Great Recession, and stock markets around the world were getting pummelled. The TSX was showing no signs of recovery, bottoming out at 7,567 in March 2009. At the time, did any analyst predict that the next 10 years would see the TSX smash records (rising to 17,000 by the end of the decade) or that global stock markets would go on the longest bull run in history, gaining $17 trillion
in 2019 alone? This remarkable winning streak has been built largely on the backs of tech giants and by government policy of attacking inflation by keeping interest rates low. With long-term bonds offering little or no yield, investors seeking higher returns have nowhere to turn but the stock market, which accounts for its meteoric rise over the last 10 years. Bearish analysts, however, are predicting that interest rates will have to rise at some point in the next decade, which could spell the end of the stock bonanza.
Still, investors will always find new opportunities for profits. It’s likely that companies that promote AI, robotics and e-commerce will continue to see exponential growth. And as the world transitions from an oil-based economy, companies that offer alternative energy or green-tech solutions to climate change will thrive. An aging population should see capital flow into the health-care sector. And ongoing privacy and security concerns will benefit companies that come up with practical solutions.
Taking a short-term look at the larger economy, many economists are predicting the U.S. engine will begin to slow down, perhaps even enter recession. Underlying factors like global trade tensions, sluggish retail sales, poor manufacturing numbers and high levels of consumer debt are fuelling these fears. When the U.S. economy stalls, so does Canada’s. We start clamping down on borrowing and discretionary spending, which has a ripple effect on companies, who stop hiring, investing and borrowing. Everything slowly grinds to a halt. Despite gloomy predictions, Finance Minister Bill Morneau doesn’t expect a recession, claiming that not one of 14 private sector economists who advise him felt a slowdown was on the horizon. Still, as Scotiabank economist Derek Holt warns, “The good times aren’t going to last forever.”
A NEW GOLD RUSH
If the next decade does bring an economic downturn, let’s hope it’s not as cataclysmic as the last one, which sent real estate prices and stock values (not to mention retirement nest eggs) into a free fall, resulting in a credit crunch that saw overleveraged banks go into foreclosure. Pessimistic investors, worried by a similar meltdown, might abandon the hightech Promised Land and turn their sights once again to an old reliable – gold. Down through the ages, gold has held its value like no other asset. Often before an economic downturn or a surge in inflation, spooked investors see gold as a safe haven, something tangible that will hold its value when inflation is high, and paper money and stocks lose market price. If the current price of gold (C$2,000 per ounce at press time) is any indication, pessimistic investors are expecting either the continuation of low interest rates or tumultuous economic times ahead. Some analysts predict that if interest rates stay low – and demand for gold soars in Asia – prices could double by 2030.
While no one is suggesting you convert your entire savings into gold, it might make sense to diversify your portfolio by adding this asset and invest in gold mines or certificates. Or if you’re bullish on bullion, you can buy the real thing – gold coins, bars or ingots. It’s ironic that as we approach an age where technology could digitize and disrupt our entire monetary system, gold – the oldest and most decidedly low-tech asset of all – will never become obsolete.