Death Of Cash? Not So Fast…

Technologists and mainstream pundits love the idea of a cashless society. Those who follow “progress” note that discussion of such an exchange medium has picked up and is actually a prime agenda of the world banking establishment.  The rapid growth of debit and prepaid cards has certainly influenced the ways in which people pay for stuff and things. So, what is the future of cash in terms of other mainstream options like debit, credit and prepaid.

The death of cash has been everywhere, and many people view it as a form factor that is today obsolete.  But, according to the Federal Reserve, US consumers conducted six billion cash withdrawal transactions from ATMS in 2009 for a total value of $647 billion (3.8% increase from 2008. That amounts to approximately 31 visits and $3,329 for every US resident over the age of 17.

But, many believe this Federal Reserve data underestimates cash withdrawals volume, as the real number – including prepaids – is more like nine or ten billion. Contrarily, Canada has seen a fall in the use of ATMs, and average cash withdrawals amount to around 38 per year for every person over the age of 17, more than 20% higher than the US according to the Fed’s figure.

With a total capital investment of about $12 billion and annual operating costs of about $7 billion on a US industry-wide basis, financial institutions are still investing in the industry “because they see a consumer need and have the ability to generate revenues based on use.” In a recent survey for Cardtronics by Dieringer Research Group, 74% of respodnents cited convenient ATM locations as important in their decisions to choose a bank.

The demand for cash is a problem for startups like Square who want you to use your phone to pay for everything.  As SV wrote of the mainstream press on the topic:

The article innocently begins with a description of the Chai drinking, bicycle riding culture of the hipster. The setting, New York’s Cafe Grumpy, is one example of our cashless future. Sitting on a  sidestreet tucked away, the author of the article recounts his order:

“Charge it to Miguel,” I told the barista after ordering a cappuccino, and charge it he did — to my phone. Not that I ever pulled my iPhone from my pocket. Seconds after the barista tapped my order on Grumpy’s minimalist register — an iPad mounted on a stylish countertop stand — my phone vibrated in my coat pocket, signaling that our transaction was complete. I couldn’t wait to check that everything had worked as promised. (It had.) For the first time ever I was tickled by the act of paying for something.

It is predominately in coffee shops like this one that one can pay for an espresso or pastry with a mobile phone app. The particular wallet app used by the author is called Square, and was developed by Jack Dorsey, Twitter’s co-founder. This small coffee shop in New York is not the only place where one can use a phone to pay. Banner brands like Starbucks, Macy’s and Home Depot all offer the smartphone payments, and, as the article makes clear, many more small-to-medium businesses and tnc’s are forging ahead with the idea and technology.

According to the author, “these are telltale signs that the mobile-payments revolution has arrived.” But, the cashless revolution is not suspected to to takeover culture quite as swiftly and seamlessly as did Twitter.  The author admits, “Changing the way Americans pay for stuff is going to be really hard work.”

It’s not just the tech industry investing in a cashless future, “but also everyone from mega-technology companies to financial institutions, giant telecoms, and national retailers.”  And so,”…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.” The article surmises that,

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. You won’t even need a few singles to tip the valet or pay the dog walker, because they’ll take mobile payments too.

With big players like AT&T, Verizon, Visa, Mastercard, Google, Microsoft, and eBay’s PayPal unit – and billions on the line in the form of millions of transactions – its no surprise that the mainstream media is serving the idea to the public domain in kind and uncritical ways. The general idea in the article is that this technology represents the future, and is a more personal option than cash in our daily transactions.

Although the article posits a big “if” condition for the future of the technology as whether or not Apple (with its 400 milion credit cards on file), Facebook and Amazon will soon invest in the technology, the real question – with so much as stake – is really, “when” these giants will enter the game.

The Fortune article champions the ease of the new technology, and the time saved:

While this revolution will be powered by complex technology, its ultimate effect will be to greatly simplify things for consumers. Think about my experience at Grumpy. While I had to fiddle with my phone ahead of time — to upload my credit card to the Square app and to authorize it to talk to the Grumpy register — once there, the phone never left my pocket. All I had to do was order my cappuccino.

The article portends that “a cashless future is more real than many suspect.” According to the global head of mobile at Visa, “financial institutions are going to have a big role to play.”

The party-line on a cashless future, as stated, is that this new mobile payment technology is more personal than cash. As Dorsey maintains, ”I think there is a general desire in American culture right now to find something that is more crafted, that is more personal,” he says. And as anyone who has ever received money as a gift will tell you, there’s nothing more impersonal than cash.”

As Fortune goes to press with their long expose on a cashless society, more is coming to light about Congress’ and the Federal Reserves research on going cashless. It is as if today was meant to be a blitz for the idea of a cashless society:

“We are, I think, on a precipice of some fundamental change in the way money is exchanged between consumers and businesses,” Rep. Shelley Moore Capito, R-W.Va., said as she opened the first of a string of hearings in March on cashless ways.

That month the Federal Reserve found that 12 percent of cellphone users had already made a payment through their phones, and almost two-thirds of technology experts surveyed by the Pew Center on Internet and American Life said they expected mobile payments to eclipse cash and credit cards by 2020.

People will continue to use cash. They will not be persuaded by slick technology which serves to ensure each transaction they make is in the network. People are autonomous, and they understand (at least some do) the importance of privacy. There is still a very large market for cash, and it is a medium that few things can compete against.

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