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Is cash nearing extinction?

By Claes Bell · 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
Leonardo
March 14, 2012 at 7:49 am

I always ALWAYS use cash, there is no reason to go with credit cards, they can become faulty due to weather (which I have experienced many a times, leaving my stomach growling during lunch); Cash is always there, you can pay someone with it without having to go through a whole huge mess, you can give it to your children so they don't run up too much. It doesn't get interest, I've been in quite a few situations where cash was the best way and or only way to pay. It is fully reliable and I go everywhere with it.

John Cook
March 14, 2012 at 7:32 am

I would like retailers to charge customers who use debit/charge cards their fee for use of cards. Anotherwords pay for the convenience for the use of credit/debit cards. That way those who pay cash will pay less. Banks charge retailers a fee every time a debit/charge card is swiped. Retailers then up the price of their goods to cover the debit card fee swipe. But the people who use cash are paying a higher price for goods. So the store makes more money.
There used to be a cash price and then there was the credit charge price. But the credit card companies wanted retailers to charge the same price for cash or credit. (UNFAIR)

Mike
March 14, 2012 at 7:31 am

Flying into Hawaii after a comedy of errors, my family gets to a restaurant for our first "good" meal of the day. Then the power goes out for almost the whole island. The restaurant shut down immediately. Found a bodega that was letting a few customers in at a time IF THEY HAD CASH. My family ate that evening because I had cash. I will never leave home without some.

Chris
March 14, 2012 at 7:25 am

Cash is King and always will be.

Ben
March 14, 2012 at 7:15 am

I can't remember the last time iI had cash in my hand or wallet. Not even loose change

Robert
March 14, 2012 at 6:57 am

I pay cash for everything. I do not use the debt/credit system that is set up for sheeple today. If they're offering to let you use their money, there's a catch somewhere. Remember, these are businesses, they exist to make a profit.

Rolf
March 14, 2012 at 6:40 am

Cash will never disappear... and there are a plethora of reasons to back my opinion..
1. There are too many people in this country that operate at of below the poverty level, they cannot get credit, and they work for cash
2. People are always looking for a bargain, and "Say, how much off will you give me if I pay cash" is a mantra to many.
3. Try to imagine the little old lady down the block, accepting credit/debit cards at her bi-annual garage sale... please!
4. Even funnier scene might be an addict and a dealer haggling over which credit card to use.
5. The paperboy would need a portable card reader to get his tip.
6. "Say son, thanks for doing the chores this week, take my credit card and give it a swipe" Yea Right!

There is something comfortable about a pocket of change and a roll of bills.... that you will never get from a handfull of plastic. It is nice to "know" you have 2000.00 in your bank acct, but it is so much better to hold it in your hand.
And fraud, computer glitches, and cyber thiefs.... I just feel more secure when what is mine is within my grasp!

mike mcc
March 13, 2012 at 12:54 am

Actually, I mainly pay cash these days. I decided that I cannot support the big banks. They are too big.

I cash my paycheck, for cash. Inconvenient, but I love the clerks at the bank who cannot believe I won't open an account with their bank to "make it easier and save the small fee". And yes, I do walk out the bank with cash, but directly across the street is my (big) bank.

So I go over there, and since I am over 55, they give me free cashiers checks. I get one for my mortgage, my utilities, and whatever other bills I feel I need to pay with a paper trail. And I mail them, via USPS, which I happen to still LOVE.

The rest of my month, I live on cash. I have a safe deposit box for times I want to save money. Why worry about the paltry interest rate the banks and credit unions pay these days? No, I want the liquidity.

So, yes, I'm still a user in some way of the financial banking system, but I like the cash method.

It feels real.

nee
March 09, 2012 at 11:55 pm

Although it may go against their banking/dredit agreement, I have found many small retailers that will "take off the tax" for cash payments.
Since the debit/credit card fees they pay often are similar to the sales tax rates of 5-8%, this makes sense.
I recall growing up there were often 2 gasoline prices...one for cash, and a higher one for credit.
Would a government-backed debit card make sense?
Perhaps it would...and it could be easily said that it would be hardly different than the government mandate to mint and print currency.
It may even prove cheaper than printing cash.

Cole
March 09, 2012 at 2:43 pm

Of course, this article points out exactly why all retail businesses should accept debit/credit and not institute a minimum purchase to do so: the writer chose to forgo his beverage purchase rather then increase his purchase to the minimum. How many sales do stores like this miss out on? I know it's much easier for me to just swipe a card then to cough up cash for an impulse purchase.

Another benefit of a debit card over cash: if someone steals your wallet you can cancel the card. Any cash in your wallet is gone and you have zero recourse to get it back.