The End of Cash … Again?

I just love it. Another story proclaiming cash is going to die a painful death. This time, its funeral will be held in 2020 in the US. The obituary writer is a Pew Research report that says 67% of “technology experts” surveyed agree that mobile devices will be so trusted, that consumers will use them exclusively and therefore, never ever need to use cash again.  The big catalyst for all of this …

 

Contenders for mobile payment supremacy include the Near Field Communications-based Google Wallet tap-and-pay application, which enables Android smartphone users to purchase products, redeem coupons and earn rewards points from select retail partners.  Isis, a nationwide m-commerce network spearheaded by AT&T, Verizon Wireless and T-Mobile USA, will begin trials in Salt Lake City and Austin, Texas, later this year.

So, where to begin.

First off, 2020 is only 7.5 years away. That means that in less than a decade, the many, many trillions of dollars in paper currency now circulating thru our economy will just disappear. Poof. Just like that. Something that more than 60 years of card ubiquity has not been able to crack. Seems implausible.  

According to a recent Federal Reserve Board report: “Americans still use cash roughly one out of every two times they buy something. For transactions of less than $10, physical currency—banknotes and coins—rules. Although less popular for higher-value transactions and rarely used in the fast-growing realm of online commerce, cash remains the most common method of payment for goods and services the world over” (Dan Litman, Federal Reserve Bank of Cleveland, Spring 2012 Bulletin). In fact, this same article cites data from this same report that the volume of cash in circulation has actually more than doubled (to 31.3 billion) in the past 20 years, and the value of that cash has more than tripled (to $1.03 trillion). And, while cash accounts for only 0.2 percent of the total value of transactions in the United States, the volume of cash transactions clocks in at 49 percent.

There are lots of reasons for this. It used to be that the only way to get cash was to go to a bank branch and cash a check. What a pain. Today, thanks to the thousands and thousands of ATMs all over the place, not to mention the option of getting cash back at point of sale, getting cash these days is a whole lot easier than it used to be. It’s also a payment method that consumers seem to like – not only is it easy to get, it is also really easy to use and just about every place you go will accept it. Some people like to have cash around when economic times are uncertain. There are also large segments of the population that just plain prefer cash. For example, I just can’t see my parents, whom I plan to have around 7.5 years from now ditching cash in favor of using their phones. These are people who still don’t use a debit card. I am sure there are lots more people just like them, young and old. Cash also has one more thing going for it. It is anonymous and that makes it appealing to lots of people for lots of reasons. Anyone want to wager whether those Secret Service Agents in Columbia whipped out their credit cards to pay for, ahem, services rendered? 

Then, there’s the “contenders for mobile payment supremacy” stuff. For those of you who are followers of my posts, I won’t bore you further with my opinion on the likelihood of Google Wallet as it now exists as  the reason that people dump cash for mobile phones. Let’s just say that it might just take the next 7.5 years for them to sort out their business model and get enough merchants on board. Being responsible for the lion’s share of mobile payments over that period of time, well I’ll bet you a big pile of cash that it simply won’t happen. <jk>

Then, there’s the world outside of the US. There is a whole big huge chunk of the population that is predominantly cash based today, like more than 2 billion people – and who will be cash based tomorrow, the next decade and the next few decades after that. Even in places where mobile makes the transfer of money from one person to the next easy and convenient, cash is still a currency that is valued in these economies and used to do business. That means that cash is taken out from those accounts and cash is reloaded onto those accounts with great regularity. If you truly believe that “mobile money” can replace cash, then you haven’t been paying attention to the Kenya/M-Pesa “use case” where the huge success of their system was the agent network that allowed cash to be taken off of accounts and loaded onto them by M-Pesa users. 

But this story is really nothing new. Pundits have been predicting the demise of cash for the last 70 years. David Evans gave a presentation to the Brookings Institute a few years back that had a variety of clips over the last few decades reporting the very same thing. So, just about every decade or so, it seems, this story is revived, always on the premise that technology is going to make it easier to use cards, shop online, or now use phones to buy stuff.

But, as we have seen over the last 60 years or so, cash is still something we have in our wallets, use situationally, and frankly, like to have around. Will mobile phones make it more convenient for people to use their phones in places where they use cash today? Absolutely! Does it mean that over time, cash is going to be used less frequently by these people? Certainly. Does it mean that these same people will never ever again use cash?  Absolutely not. 

As technologists over the years have inaccurately predicted, the last mile – merchant acceptance – is what will keep cash circulating for a very long time. It has taken decades for many smaller merchants to just now accept electronic payments. Square and PayPal Here and GoPayment will make that process more quickly but it will still take time. There are still segments of the population, even in the US, who are cash-based and will stay that way for a while. Consumer behavior is a hard thing to change. Merchant practices and processes are even harder.

So, that’s my top of the head reaction to the Pew Report. What do you think?