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Digital cash replacement from Royal Canadian Mint in the works
The Royal Canadian Mint is pushing forward with its “MintChip” prototype, a digital cash replacement aimed at transactions under $10
Secure chips have already made it into our credit and debit cards. Next up, they could replace pocket change.
The Royal Canadian Mint has been pushing forward with its “MintChip” prototype, a digital cash replacement aimed at transactions under $10, since it surfaced a year ago. The Crown corporation is factoring in developer feedback, hiring a product manager and consulting with the financial sector.
“I would look on it very much as an alternative, and hopefully a replacement, for physical cash,” said David Everett, the British cryptographic expert hired years ago to work on the MintChip. “Today, people obviously use coins. They use bits of metal and bits of paper. The future is obviously going to be much more electronic.”
Since 2009, funds have been put toward “improving the efficiency of Canada’s currency” and international expertise has been enlisted to develop an “eCoin” for Canada, according to internal documents, interviews and international patents.
MintChip, as envisioned, could enable paying someone back by tapping phones together, scanning a QR code to donate to charity, or clicking to spend cents on an online article.
However, it’s not known when — or even if — the MintChip will be released into circulation. A Finance Department official said the Crown corporation is consulting with the federal government on potential next steps, and currency changes can require legislative approval.
To even attempt to create such a system sets Canada apart from other countries, said electronic transaction specialist Dave Birch. “To the best of my knowledge, Canada is the only mint that’s seriously experimenting with this sort of thing,” he said.
MintChip emulates the positives of cash — payments are anonymous and don’t require a bank — but work electronically. Value is recorded on chips within USB sticks or on MicroSD cards in phones, tablets or other devices. Value is transferred between chips for low, or no, transaction fees.
Everett compared the system to handing someone a toonie.
“What I’d like to do is do exactly the same thing electronically . . . I’d have my phone, you’d have your phone, we’d touch the phones together,” he said, adding it would also work remotely, through email or apps.
The Royal Canadian Mint’s eight international patents, detailing technicalities and security, were invented by Everett, MintChip’s technical architect. He’s also the man behind Mondex, a private smart card in the 1990s, which some had predicted would change the payment world.
It ended up fizzling. “I think we had a lot of ideas right but were probably just a bit too early,” Everett said from the English village of Rustington ahead of one of his roughly monthly trips to Ottawa.
Mondex was designed over Christmas in 1990. In hindsight, he said, there was nothing really “broken” about payments then. But “the minute you move to the Internet, that’s not true.”
There’s now a “huge market” for low-value payments online, he said, noting banking fees and age limits hinder paying cents for online games or blogs. Everett envisions parents topping up their children’s MintChips from their own; others could add value at banks with debit, credit or cash.
The MintChip idea became public a year ago with the launch on a contest that asked app developers what they would do with digital currency.
Consultations are happening now with merchants, financial institutions and “all of the people we think would be interested in what this might mean,” said the Mint’s chief financial officer, Marc Brûlé.
The experiment is interesting because of potential to reduce costs, said Birch, a director with Consult Hyperion. (The firm reviewed the MintChip idea but Birch wasn’t directly involved.)
From production to handling, small change is expensive: there’s the cost of sorting and rolling and necessities such as security guards. Reducing costs could be good for government, merchants and banks, Birch said.
Recently, banks have given customers the option of using near-field communication (NFC) technology in their phones for fast purchases. Mobile wallet apps similarly store bank information.
Since MintChip would actually be money, it would be in a different category than those NFC payments, which are withdrawn from accounts, said economics professor George Selgin, who specializes in banking and monetary policy at the University of Georgia.
“With MintChip, you could conceivably have that system running where not a soul involved has a bank account or a credit card. That’s the difference,” Selgin said, suggesting MintChip is most comparable to Everett’s earlier creation.
The project is likely about saving money, Selgin said, noting Canada is phasing out expensive pennies.
An internal memo from last year, released to the Star under an access to information request, reminds managers that as well as making Canadian coins, the Mint has foreign coinage contracts. Coins were recently made for Ethiopia, Panama, Uganda, Ghana and New Zealand.
MintChip has potential to be sent to other countries, said Brûlé, who refused to release the cost of the project because it’s “commercially sensitive.”
If MintChip is ever released it could create security jobs as well, according to the memo, which suggests it would need to be monitored in circulation.
‘Instant messaging for your wallet’
MicroSD cards loaded with money were sent to hundreds of developers a year ago by the Royal Canadian Mint.
The tiny chips had logos on them, representing MintChip, and the recipients were some of the first people outside the Mint to get a glimpse of Canada’s electronic currency prototype.
“The concept of cash that’s peer-to-peer is very appealing,” said mobile app developer Jan Hannemann, who received MintChips in Victoria.
He and the other recipients had entered the MintChip Challenge, a contest set up by the Royal Canadian Mint to create payment applications demonstrating potential for the digital cash replacement. Hundreds of spots filled up within days.
Hannemann’s idea, MintWallet, went on to win the grand prize for best overall application. His goal was to make virtual currency to be “like instant messaging for your wallet.” Using cloud technology and push notifications, users could use MintChips for payments, from garage sales to online purchases.
After filling in payee and amount, the “money request” can be sent virtually or create a QR code, which can be scanned and used as a payment. Parking meters could use the system for payment, and it could be used between friends to divvy up restaurant bills, he said.
“Communicating with people, we use social networks, instant messaging,” he said. “The same can be true with money, using MintChip.”
Another idea aimed to be the “digital version of the cash register donation box.” Dickson Wong came in second for his Pennies A Day app, which donates to charity for each MintChip payment. The user selects the charity and the amount, as low as a penny.
Wong said small digital donations could go a long way, but wouldn’t be possible without something like MintChip.
“The big advantage is that it doesn’t require an outside network … credit cards take a cut,” he said. “For some merchants that’s just not viable, especially for something like micro-donations.”
