Over the last few months there have been a spate of articles on the evolution to a cashless society as the use of mobile devices continues to grow around the world. The Death of Cash, Time for Cash to Cash Out?, Visions of a Cashless Society, and Why Cash is Losing its Currency? are some of the titles. The articles are generally focused on two key aspects of mobile digital money: innovative technologies and apps, which are primarily being introduced in the more advanced economies; and the financial inclusiveness of the poorer segments of society in developing economies. Let me briefly explore an article in each of these two categories.
The Death of Cash, published by Miguel Helft in Fortune, is a good article of the first category. He writes about his experiences buying a cappuccino at a coffee house in New York City. He payed for it by simply telling the cashier “Charge it to Miguel,” and was done. That’s because the coffee house uses Square Register, an iPad-based digital cash register application, and Helft has Pay with Square, a digital wallet app in his smartphone.
Both products were announced last year by the San Francisco-based startup Square. Square Register is an iPad app that enables merchants to accept payments, generate digital receipts and manage their menu items and prices. Pay with Square is the companion smartphone app that let’s customers open a tab at any business that uses Register, and pay for their purchases by simply giving their name.
The smartphone app is linked to a credit card and your personal photo. The iPad Register app detects when you are in the store with Pay with Square open in your smartphone and displays your name and photo. After ringing up your purchases, the cashier makes sure your photo matches your face and then taps on it to charge the purchases to your linked credit card.
Just before posting this blog, it was announced that Square’s mobile payment offerings will be available at Starbucks’ 7,000 US stores. Somewhat similar capabilities are being pursued by a number of other vendors, including PayPal, Verifone and Google.
“Changing the way Americans pay for stuff is going to be really hard work. For starters, retailers and their partners will have to offer mainstream shoppers some pretty sweet perks to get them to replace a swipe of a plastic card with a tap of a phone. Then there's the chicken-and-egg problem: Merchants don't want to upgrade pricey point-of-sale terminals so that they can work wirelessly with smartphones unless e-wallets become mainstream, and e-wallets won't become mainstream until consumers can use them just about everywhere. . .”
“Yet once these issues are sorted out - and with so many billions at stake, they will be - cash will find itself on the endangered-species list. Paying by phone will be as transformative as the advent of the credit card in the 1950s. It will change the way we shop and bank. With powerful smartphones and tablets taking center stage on both sides of the checkout counter, it will reshape the relationship between buyer and seller. Not only will the phone or the tablet become a wallet for consumers, but it will also turn into a credit card reader and a register for merchants. Shoppers will use their mobile device as a coupon book, a comparison-shopping tool, and a repository of those unwieldy loyalty cards they carry from everyone from giant retail chains to the corner bakery. And your smartphones will serve as beacons that will alert a retailer when you walk into its store so that it can recommend products, show you reviews, or direct you to aisle five, where that beanbag chair you didn't buy last week still beckons - and you can now have it for 10% off.”
In advanced economies, these are the kind of once-near-magical digital technology innovations that we now take for granted. But for billions around the world, mobile digital money is their ticket to financial inclusiveness and membership in the digital economy.
“The poorer you are, the higher the costs and risks of cash become,” wrote David Wolman last February in a Wall Street Journal article, Time for Cash to Cash Out? “Anyone you know can beg you for a few bucks or steal the hard-earned money that you're trying to save to pay your children's school fees. A fire or natural disaster can obliterate your meager savings. And you may have to spend days riding buses and walking to the countryside to deliver cash to, or retrieve it from, a relative. Even if a wire service is accessible, that means paying steep service fees.”
He later adds: “Having money in electronic form is our ticket to both streamlined commerce and services that help us to achieve stability beyond the next meal or visit to the doctor: mortgages, small-business loans, interest-bearing accounts, health insurance, home insurance, college savings, e-commerce and more. Yet while we can essentially toggle between paper and electronic money as we see fit, the poor are stuck using cash. A primary barrier is the conventional model for banking based on bricks-and-mortar branches. It has never been profitable to put bank branches in the slums and rural villages where poor people live, while balance minimums and the time required to get to and from a branch make old-school banking unrealistic and unattractive.”
“But phones are everywhere. Mobile technology is now being touted as a solution for getting financial services to the roughly one billion people who already have a phone but who don't have a bank account. The models vary, but the gist of mobile money is electronically storing or transferring value by way of the phone. For mobile banking, the idea is to make it possible for almost anyone to open and use a no-frills savings account and, through a network of associated merchants, make transactions. Major players like the World Bank and the Gates Foundation are already investing heavily in these new technologies for providing the poor with financial services.”
As Wolman says, the Gates Foundation is among the institutions helping to bring mobile digital money and related financial services to the poor around the world. In Digital Currency Improves Financial Access, Roger Voorhies of the Gates Foundation writes:
“The digitization of publishing, music, and communications has created new business models and channels that increase access and reduce delivery costs. Shifting the bulk of the poor’s financial transactions into digital form is the catalytic change that can strip the majority of cash processing costs out of the system and make ongoing costs predictable. This means that the shift to digital can pave the way for affordable and far-reaching services that directly address poor people’s needs.”
Similarly, this past June, the US Agency for International Development (USAID) and Citi announced a partnership aimed at accelerating mobile money adoption in developing countries. Their joint press release said:
“Of the five billion mobile phone users worldwide, nearly two billion lack access to banking services, instead relying on cash transactions that expose them to potential theft, fraud or loss, and high-cost lending and remittance providers that leave them vulnerable to endless debt and high fees. . . . [E]xpanding the adoption of mobile financial solutions is a critical economic development strategy with the potential to drive growth and increase financial access and security for the developing world’s poor population. The effort seeks to strengthen alternatives to a cash-based system that is inefficient, costly, and prone to corruption.”
The cashless society should be interpreted as a metaphor for the major changes taking place across just about all segments of the world of payments. It does not really matter if we ever truly become a cashless society as long as we achieve the intended benefits along the way and continue doing so year-in, year-out. As the growing interest on the subject demonstrates, we are well underway in what promises to be a long and exciting journey.
There is no stopping the evolution to a cashless society. It will be a convergence of the internet, credit and debit cards that have Visa PayWave & MasterCard PayPass, American Express cards that have ExpressPay, and a smart phone that can be used in much the same way as a credit or debit card with PayWave, PayPass, or ExpressPay. These developments will eventually consign cash to history. Our smart phones will contain every debit and credit card we own, as well as all of our discount vouchers and receipts in digital form. As a result, there will not be any need to carry any more bits of paper in our wallets. Google will produce a Google wallet, Visa will have an e-wallet, MasterCard, Square, and PayPass will all offer a similar product, as well. These products are called virtual wallets.
I don’t think that plastic cards will be eliminated in future. When a power blackout or some other inevitable technical issue occurs, plastic cards can be imprinted mechanically with paper, or some other technology will be developed to record the transaction perfectly. Placing barcodes on all plastic cards that are read by a barcode reader that is powered by some other means could possibly perform this service.
I am absolutely confident that we are on the verge of a tipping point regarding the eventual elimination of cash from our economy. As long as there is a national regime of privacy legislation, the security and integrity of the internet is assured, powerful institutions such as state and federal governments will seek and obtain taxes in full in future. This will help to fund our treasury and help to pay for community infrastructure, the operation of federal and state departments, all government projects, and policy developments. In addition, governments will not have to bear the cost of printing, manufacturing, storing, and transporting cash.
What I think will happen is that we will have a de facto cashless society first, where a majority of transactions will be done without cash, both in numbers of transactions and in the quantity of money involved. We will probably have a de facto cashless society in about 5 years. After a period of a further 30 to 40 years, or somewhere thereabouts, cash will be eliminated from our economy after the nation has had a plethora of free and wide-ranging debates about this issue.
It will be convenient not to have to ask for and carry any more paper receipts or physical discount vouchers, because they will be emailed to our mobile phones and personal computers. How incredible, powerful, and efficient will both Visa's, Google's, Square’s and PayPass’s virtual wallets be, once they become commonplace? Can the banking system adapt and catch-up? That is a rhetorical question. A cashless society is in every bank’s financial interest.
Police and intelligence agencies will advocate a cashless society in order to limit or prevent crimes associated with cash. Cash always provides criminal anonymity as in the drug trade, terrorism, burglaries, organised crime, illegal gun running, and cash thefts. The crime of counterfeiting money will be completely eliminated. The black economy is based on the criminal anonymity that cash allows. This will dissipate when physical cash is removed from society. An important part of the elimination of criminal anonymity in the future will be making emerging digital or virtual currencies illegal.
A cashless society is one where greenhouse gasses are kept to a minimum. A society with cash is embedded to a polluting infrastructure. The manufacture of cash requires the transportation and use of raw materials in manufacturing processes, with the final product transported to financial institutions. Apart from the obvious risk to society from criminals, the transport of cash in security vans leads to greater air pollution in our communities. This is not counting people who desire to make either a deposit or withdrawal to their accounts throughout the nation on a daily basis.
A cashless society does not have to be the policy of any political party or government instrumentality. It does not have to be something that is forced on any nation that is not broadly accepting and ready for it. It should only be achieved after a plethora of wide-ranging national debate. It will broadly come of its own accord through technological development. The public will increasingly demand its security, integrity, and its many conveniences such as reduced queuing time for payments using payWave, PayPass, or ExpressPay, with a plastic card or mobile phone.
Not only will a cashless society make paying at any retail point a quicker process, it will also make payment cues either shorter in length or non-existent. RFID, which stands for ‘Radio Frequency Identification’, will eliminate cues altogether. RFID will be adopted by supermarket chains in future. All that a customer has to do is to load up their trolley with what they want to purchase, and simply walk out to their car without going through any checkout process involving staff. RFID will accurately note what has been taken out of store by a specific customer, tally each item, charge the goods to the customer, and email a receipt to the customer’s mobile phone or computer.
Banks and most businesses will want a cashless society because it will substantially lower their costs, by not having to deal with cash on a daily basis. There will not be any need to count, store, or transport cash. This will engender all banks and businesses to operate more safely and enjoy lower cost overheads as well.
A cashless society will be evolutionary, convenient, and unstoppable. In combination, all of these factors will prove irresistible for most if not all modern economies. They will prove fatal for the continued existence of cash, the more we move towards the future. A cashless society will provide a plethora of social and economic advantages, relative to a society that maintains cash.
Posted by: John Candido | August 09, 2012 at 06:40 AM
Please see the Stowe Boyd article to bring some balance to this type of thinking:
Cash Is Essential For A Free Society
http://stoweboyd.com/post/29064677031/cash-is-essential-for-a-free-society
Posted by: Jon Matonis | August 15, 2012 at 07:01 AM
I have read the above link and have quoted from it in my reply to it.
‘Cash is a prerequisite of a free society, while enacting a system without anonymous cash is only attractive to the government and moralists.’
Cash has existed before democratic societies were created. Cash exists in non-democratic societies such as China and North Korea. Cash has also existed in past totalitarian societies such as the USSR. It is not that cash is a prerequisite of a free society but that private property is a prerequisite of a free society, and cash can be in a digital form and owned by someone. A cashless society is attractive to individuals that like the convenience and security of purchasing goods without using cash. You don’t have to be a moralist to enjoy a cashless society. You can enjoy a cashless society because it embodies practical commonsense.
‘And who does such a system benefit? Not the part-time sex worker, trying to make ends meet in a down economy. Not the bellman at the airport, whose tips might disappear after the transition to cards. Not the homeless guy I gave $2 to the other day, or the busker playing guitar in the train station. Or the Green Peace folks collecting coins at the park.’
Cashless person to person transactions enabled by mobile phones, alone or in combination with credit or debit cards, can do all of the above.
‘The ones that benefit are those selling the cards and the readers. And the policy-makers who want to see the flow of cash to find — supposedly — drug lords and terrorists, but secretly want to know everything about everybody.’
All of society will benefit with the introduction of a cashless society. All sorts of crime will go down or disappear, the economy will be better off as governments will collect what is owed to them in taxes, and individuals and families will be better off because they can transact with confidence and in far greater safety. Such a society must only be introduced after a considerable amount of free debate.
‘But we have the right to privacy in our doings. We don’t have to say why we want privacy: it is our right.’
Absolutely correct! Our privacy is a human right. Humans cannot function normally without privacy. A cashless society must only be introduced after a national regime of privacy legislation is enacted.
‘…In the meantime, people slip into the shadow world to buy a bag (marihuana). And they are justified, since laws that are enacted without regard to science and health — that are ideological and repressive — are illegitimate, and the people have the right to run around them.’
Current scientific studies have suggested that marihuana use is not harmless and can be associated with the development of schizophrenia in some individuals who have a predisposition to it. Apart from this, society will one day become enlightened and legalise and regulate all drugs. Until that day, purchasing drugs on the street is feeding organised criminal gangs.
‘…if we contort our free and open societies to counter terrorists’ use of cash, they have won.’
The terrorists don’t win if we have another legitimate means to track and prevent terrorism beforehand, or to apprehend terrorists after the act.
‘If the authorities start rounding up all the money, and begin distributing smartcards, it’s time to rally in the streets.’
It shouldn’t get to this stage if there is free debate throughout any nation-state.
Posted by: John Candido | August 15, 2012 at 04:55 PM