Polymer Banknotes: Future of Payments or Dead-End in Security Printing?

First introduced in the 1980s, polymer banknotes have gradually spread around the world, with some thirty countries now using them. This slow progress has been made possible by the efforts of central banks, and even more so by the main polymer banknotes supplier: De La Rue Currency. Now that the company is beset by structural difficulties and the digital payments are on the rise across the globe, the limited popularity of plastic bills becomes questionable.

Polymer banknotes seem to be modern and fashionable, but they are not as popular as one might imagine, and their adoption is stalling in 2023. This unfashionableness may partly be attributed to the general ecological agenda on plastic, but a look into affairs of De La Rue, the British polymer banknotes solutions provider, offers a better explanation. The company, positions itself as "the only supplier of polymer substrates for the design and printing of full banknotes", provides services and sells materials to more than 20 issuing authorities and related printing facilities. To understand the precarious interdependence of De La Rue and plastic banknotes, and why this industry is now under threat, let's take a look at where it all began.

Polymer is not as secure and innovative as expected

Polymer banknotes have been called 'durable', 'innovative', 'secure' and so on for so long that we've got used to thinking of them that way. What we didn't realize, however, was that this trend began to snowball in 2014, when De La Rue won the Bank of England's contract to print plastic money. The company was, in its own words, "delighted" , which is not surprising: the contract promised big profits. These were vital for De La Rue, which was struggling with a profit warning and a shaky position in the paper banknote market after several notable failures and challenges.

The company, happy with the new contract, launched a marketing offensive (as much of a campaign as is possible in the closed world of money printing) in hopes to improve its market position. The plastic money was positioned as a more reliable, durable and secure alternative to paper money, and it seemed for a while that it was indeed so: Australia, for instance, proudly called its polymer currency “one of the most advanced in the world”.

This belief was severely challenged a few years later when nearly 50 million plastic £5 and £10 notes had to be replaced due to wear and tear shortly after their introduction. Counterfeit-proofing proposals haven't lived up to expectations either: Canadian criminals, for example, learned to fake a note using only sticky tape, and the “advanced” Australian bill is easily forged and sold on the dark web . These and other cases call into question the wisdom of using polymer banknotes, and cannot justify the higher printing costs and significant environmental impact of plastic compared to paper.

Normally, companies invest large sums of money in research and development to overcome such problems, with the pacemakers of the industry making the largest contributions. The extent of De La Rue's investment in the industry is unknown, but there's no doubt that financial difficulties of a big company inevitably lead to limited research capacity in the overall pool of industry players. The security printing is a closed circle, the price of entering it is very high, and the number of clients is limited. Should one major player falter, it is unlikely that someone new will emerge soon to offer a substantial replacement.

For now, De La Rue’s forecast looks slightly less bleak, but the utter interdependence of the polymer currency and the British company still raises doubts about future breakthroughs in addressing emerging challenges, obtaining advanced and more secure polymer banknotes in the future, and even general trust in the plastic.

The dangers of focusing on plastic banknotes

The company keeps relying on polymer banknotes printing and supplies. At that, demand for physical cash in most countries is slowly falling as digital payments are on the rise and central banks are exploring possibilities for adoption and use of the Central Bank Digital Currencies (CBDCs). Other security printers are less prone to these changes: for instance, paper printers have secured its place, as cash will still stay with us anyway and paper substrate remains predominant in banknote production. Some of the printers, with more diversified business, are even welcoming the digital age, like the German-headquartered security solutions group Giesecke+Devrient being enthusiastic about the forthcoming digital euro: “The digital euro would be the right answer to the growing demand for secure and reliable digital payment options... Citizens would thus have even more freedom of choice when paying in the future,” Ralf Wintergerst, Group CEO of G+D, said.

For De La Rue and polymer bills, the horizon is not so bright. The company’s bet on plastic makes it spare the possibility of a better future in the diverse payments landscape. The British printer is seeing harbingers of the gloomy forecast appearing already now, be it production defects with Thailand’s banknotes or the company’s April warning of ‘significant uncertainty’ related to a downturn in cash usage. And if the financial problems start affect production processes or quality control measures of the main polymer substrates supplier, the polymer banknote industry will inevitably start to shake and crumble. Overall, the logic has it that the fight for plastic banknotes may seem like a wrong battle as digital currencies are growing and as polymer fail to prove that it is fundamentally better than paper. And this wrong battle may become a big mistake for De La Rue, its customers and all industry stakeholder, and cancel the future of polymer currency altogether.