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Is cash nearing extinction?

By Claes Bell, CFA · Bankrate.com
Friday, March 9, 2012
Posted: 11 am ET

Thanks to the rise of debit cards and electronic payments, a lot of economists and tech writers have begun to advocate for a world without cash.

But if one writer's experience is any indication, it's going to be awhile before that happens. Seth Stevenson, a writer for Slate, is trying an experiment: seeing if it's possible to live life totally cashless. As of his last entry, it had been 44 days since he'd used cash. From the story (which I highly encourage you to check out at Slate.com/articles/business):

My worst moment came when an out-of-town friend asked me to welcome two of his pals who'd recently moved to New York. They were a young couple, and didn't seem to have a ton of dough. So after we'd downed a few drinks and appetizers, I excused myself and surreptitiously approached the waitress -- planning to take care of the whole check before the couple could offer to pay their share. "We only take cash," said the waitress. "Why??" I asked in dismay, as though it might somehow change her answer. "That's just our owner's preference," she replied (with a tone that conveyed the exact opposite of sympathy). Mortified, I returned to the table and asked these broke youngsters if they could cover my portion of the bill. They did so without a peep. But they weren't on PayPal, and I still haven't paid them back.

Isolated fiascos aside, the worst part of this stunt has been the everyday inconveniences. Say I'm in a hurry, and hope to buy a soda at a corner bodega to drink while I'm walking: There's inevitably a $5 minimum to use credit cards, so I forgo the beverage. Or, say I'm at a bar, and I order a single beer for six bucks. I'm informed there's a $10 credit card minimum, and I really don't want a second drink, so I end up tipping 67 percent to round out the bill. (I notice some commenters on my previous entry theorized that it would be easier to live cashlessly in a big city like New York. But a colleague with parents in Ohio swears that it's when he's back home that he never needs bills -- big, modern chain stores proliferate there, while New York is packed with mom-and-pop shops lacking credit card readers and hipster taverns evading their taxes.)

Stevenson hits on a big reason why the death of cash is a long way down the road. First off, there's a premium involved in taking cards that many businesses are unwilling to pay, despite whatever help they're getting from the Durbin Amendment's cap on debit processing fees. And as Stevenson notes, there are some businesses that are willing to put up with the fees they'll pay to banks, but only if you make a purchase over a certain limit.

Another barrier to a cashless existence is finding a way to make the kind of informal person-to-person payments that a lot people use cash for, e.g., paying the baby sitter or settling the dinner bill with a friend. Electronic person-to-person payment systems created by banks and third parties have attempted to solve that problem, creating smartphone apps that would allow users to transfer funds back and forth for a small fee.

The problem with many of them, besides needing a smartphone to make them really useful, has been that the person receiving the payment would have to have an account capable of accepting it. With the plethora of financial institutions and different P2P standards, the odds the person you needed to pay would have such an account were low, as the writer above found out.

There are a couple of new developments that could solve the problem. Fiserv, a financial services tech company, acquired the company that owned Popmoney and is combining it with ZashPay, its own P2P service. Together, the network will connect 1,400 financial institutions and reach 35 million customers. The ubiquitous PULSE network is also pushing into P2P, partnering with Obopay, a popular international P2P provider. The new network will allow any financial institution on the PULSE network to offer P2P payments to its customers.

Between the two, along with PayPal and the clearXchange partnership set up last year between Bank of America Chase and Wells Fargo, at some point we'll see electronic P2P payments become more common. Eventually, I'd bet every mobile banking app will have some kind of P2P offering that will be widely compatible with other mobile banking apps.

And that will be one more step toward getting rid of cash altogether.

What do you think? Will Americans ever stop using cash? Do you use P2P payments?

Follow me on Twitter: @ClaesBell

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35 Comments
Mike P.
March 31, 2012 at 10:29 pm

The goal of the banks is to get us all to stop using cash.They make more money that way. Uncle Sam likes it as well because they can watch every move you make.Ahhh freedom! The American consumer is so brainwashed by the whole credit card thing that it's not even funny. I own a retail business and I see people who can't even pull out cash to buy a pack of friggin gum. I got news for you folks, one of the reasons that prices are rising is because it costs a business 2-3% juice to the card issuer for every swipe of the card. That forces us to raise our prices. Then people pay with their card and try to dispute the debt claiming fraud, poor service, blah blah.The issuer almost always takes their side and the merchants get stuck paying the bill.We pass the cost on to other customers. Also folks, knock it off with the reward cards already. We the merchants end up paying for your reward points not your credit card company and guess what? Yup! We pass the cost on by increasing our prices.So enjoy your "free" rewards plane ticket to wherever, but hey howz about a post card with a thank you on it at least. At the end of the day nothing is free. Use cash whenever you can it will save all of us money in the long run.You will be helping out mom and pop shops big time, and most importantly you will push out the 3rd party(credit card companies) from profiting from a transaction that was meant to be between you and your merchant.

DH
March 25, 2012 at 10:28 pm

Only a moron would advocate a cashless society! Talk about letting the government completely rule your life....no privacy, no anonymity, no ability to control your own life. If you are looking for the last nail in the coffin for freedom, you are looking at it.

ra
March 21, 2012 at 11:29 am

Why would someone want all of their life tracked by payments?
Absolutely absurd.
The day the world is cashless is the day to move to the mountains.
(actually move there 1 year before)

Hugh Higley
March 14, 2012 at 1:54 pm

I would rather the Govt ban credit cards. only use cash or pay by check.
No one can track where you spend cash.

paul kelly
March 14, 2012 at 11:28 am

Whats Wrong With The Barter System,