The Cashless Society
For years, analysts have predicted the elimination of physical cash as a transaction medium. Such a transaction medium has been referred to as a “cashless society.” Substituted in the place of cash would be an electronic payment system, in one form or another. Some analysts look at such a prospect optimistically, believing that a cashless society would increase the efficiency of the economy. Still, others, view such a prospect pessimistically believing that it would subject the most private details of our lives to scrutiny and publication. Whatever the outcome, such a radical transformation will undoubtedly have a substantial affect on the credit card processing industry.
Attention to the possibility of a cashless society has increased and intensified over the past several years. Those who are enthusiasm over the prospect of eliminating cash as a transaction medium believe that the immediate benefits would be profound and fundamental. Theft of cash would become impossible. Bank robberies and cash register robberies might cease to occur. Attacks on shopkeepers, taxi drivers, and cashiers could end. Urban streets might very well become safer. Security costs and insurance rates might possibly fall. Property values could very well rise. The sale of illegal drugs, along with related violent crime could diminish. Hospital emergency rooms might become less crowded. A change from cash to recorded electronic money might be accompanied by a flow of previously unpaid income tax revenues in the billions of dollars. As a result, income tax rates could be lowered or the national debt reduced.
Not all proponents are as ecstatic about the benefits of a cashless society. However, regardless of the advantages, or disadvantages, some observers think that it might only be a matter of time before the cashless society becomes a reality. Many describe the elimination of coins and currency any time soon as a myth.
Whatever the criticism, the elimination of cash transactions is fast becoming technically feasible. There need not be a unitary government-run electronic monetary system for cash to disappear. Many electronic and other non-cash payments means are already in use. Credit cards, debit cards, prepayment cards, and smart cards are established components of a non-cash transaction system. Checks, of course, are a non-cash payment means also, but do not fit either into the electronic cashless society visualized by its proponents.
Credit cards are in such widespread use so as to hardly require discussion. The credit card business has been characterized by some as being saturated. Not strictly a payment means, but a promise of deferred payment, credit cards nonetheless can substitute for the use of cash. Debit cards have been available for years. They represent a true payment means since the amount of the purchase is taken from an account belonging to the customer. Despite there being millions of debit cards in use, whether the relative volume of purchases made with them exceeds those of cash is debatable.
Use of debit cards seems likely to grow throughout the decade. Many were reluctant to issue them in the past because of technical problems and the perceived difficulty of making them profitable. However, both Visa and MasterCard launched campaigns to gain more extensive use of their debit cards. These campaigns encompass trying to sign up more banks as issuers and educating consumers in their use. They have also been seeking additional outlets which have not traditionally taken credit cards, including taxi cabs and fast food outlets. Even welfare recipients are using a form of debit cards.
ATMs have facilitated the use of cash by making cash easily available at any time, just about anywhere. However, ATMs which dispense “scrip” spendable at the retailer in which the ATM is located have been introduced into the marketplace, but have not proven to be successful in their deployment. Such script machines should appeal to retailers as another means of making it easy for customers to spend money while being much cheaper to have on site than an ATM. They are also less attractive to criminals than cash ATMs.
Prepayment cards store value on magnetic, electronic, or optical media, often in appearance much like a credit card. When used, the accepting device erases the proper portion of the value. Prepayment cards have had substantial use overseas, and their use in the United States has grown substantially over the past few years. Smart cards are in a sense an extension of the prepayment cards. Like the prepayment cards, they can store value for future use, but they also include an internal microchip based processing capability. Smart cards have been little used in the United States, but are common in Europe.
Economic hurdles may limit the development of alternative systems which are technically feasible. The cost of paper handling and getting authorizations accompanying the acceptance of credit and debit cards has been a barrier in the past, especially for moderate size transactions. The development of low cost point of sale terminals has been eliminating the need for this paper handling since it makes possible the exclusively electronic handling of the transaction. This has resulted in a substantial reduction in the cost of an average credit authorization over the past several years. The cost of handling transactions electronically is approaching the level that makes even relatively small purchases with electronic payment means feasible. Such non-paper exchanges can now have a cost advantage over checks.
Lack of consumer acceptance has impeded the spread of debit cards and may also slow further advances in electronic payments means. The problem may partly have been the name “debit card.” To combat this, such cards are often referred to as cash or check cards. Another obstacle is that for many consumers there is no net advantage to debit cards. There is an element of convenience over carrying cash or even a checkbook. However, the user loses the deferred payment feature inherent in credit cards and assumes greater potential liability if the card is lost or stolen. Considering these factors, it might be fair to say that those who pay off their credit card balances every month will in most cases be better off with one of the many no-fee credit cards now available than with a debit card. Many consumers are likely to reach the same conclusion, though those who do not qualify for credit cards may find debit cards appealing. It appears that consumers still use cash more than any other payment means for personal expenditures.
It is not merely drug dealers or other criminals who are concerned with the privacy afforded by cash transactions. Others are worried about the detailed record of their transactions left by non-cash transactions. Non-cash transactions substantially jeopardize privacy, which is lost with the current electronic credit, debit and smart cards. For example, it give the opportunity for strangers to accumulate and swap portfolios of information evidencing a number of things that most persons would care to remain private, including, but not limited to, what videos or games a person rents at the video store, what books are purchased in bookstores or what is otherwise purchased at any store or on the internet.
Further, cynics say they do not trust politicians who tell everyone that by snooping in merchants’ databases they will succeed in protecting the privacy of consumers. Instead, they believe that the politicians will use the data for their own political purposes – collecting taxes, attempting to reduce national health care costs, getting re-elected, etc. Fear of being tracked in detail is not groundless. For example, card associations provide services that allow banks to more precisely analyze cardholders’ buying patterns and target sales and promotions to customers. Prepayment cards are generally anonymous in use. However, there is no technological barrier to the issuer encoding information about the purchaser on the card and tracking its use. In addition, systems have point-of-use devices networked to computers to spot misuse of the cards. It is not hard to visualize the practice expanding.
Extremists believe that a “cashless society” is one step closer to a world dictatorship. A new monetary system would be implemented under such a society thereby rendering existing savings worthless. Still other extremists believe that a cashless society would be evidence of the Anti-Christ where everyone would be forced to have a mark on their right hand or forehead to buy or sell. They quote the Bible where it states that the mark of the Beast or Antichrist will fool many religions by conducting miracles and promising peace. They fear that the “Beast” will break his promise of peace, rule the world and force everyone to worship him by accepting the satanic mark in order to buy and sell goods.
The elimination of physical cash from our economy is already feasible from a purely technological perspective. The economic barriers are also disappearing, though a substantial additional investment in equipment and cards would be needed to permit the purchase of small-ticket items. Some mechanism to permit easy transfer from one person to another would also have to be provided. There do not seem to be adequate incentives to induce any entity or group of entities to make this substantial investment in the near-term. Thus, any transition to a cashless society is likely to be gradual.
An even greater obstacle to the elimination of physical cash is consumer resistance. In spite of the availability of a variety of non-cash payment means, there has not been a substantial decline in the relative use of cash over the past decade. Even among those consumers who are not concerned over the privacy implications, simple inertia requires a greater incentive for change than has so far been evident.
The cashless society, then, seems to be a far distant vision. It is only a few years closer to fulfillment than when first expounded many years ago.