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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
Chris
March 14, 2012 at 10:10 am

Studies show that people spend about 12% more with a debit card than they do with cash, and I think it was an additional 10-12% more when they use a credit card. So of course stores and banks want us to use credit and debit cards. If we use cards, we buy more, then we end up paying more fees and more interest. And the stores pay fees too so they mark up their prices to make the buyer cover those, and someone else ends up with more of MY money. I don't think so! I use cash almost exclusively, and my spending has decreased considerably. Now I keep more of my own money. If given a choice, I would vote to keep cash every time.

Wendy
March 14, 2012 at 9:53 am

I heard that information years ago, people will mo longer have cash spend in there hands, and wounder if it will be in best interest of public. WE nevel have a chance to touch coins or cash in our hands, changing banking indrustry for years to come. Our pay check will go into this electronic account goverment may deied is in our best interest. I am not ready for change with money yet, think poor people who upt to have no back account will be most effected by this way to pay for stuff.

kyle
March 14, 2012 at 9:50 am

I don't remember the last time I used cash. If a restaurant says they don't accept cards I refuse to give them service. In today's age of technology I find it unacceptable that a merchant refuses to pay a 2% premium when most stores have a far larger mark up on most items. I support a cash free world. Now I don't understand why anyone would want to carry large amounts of cash to go shopping. While I only have to carry a ID and a credit card I have all I need. Plus I receive an extra $1000- 1500 a year from my cash rewards.

Wizdom
March 14, 2012 at 9:46 am

Why? are people distraught about this? If you believe in God than you believe in his prophecies and his word.God is the same today, tommorrow and forever. We change and the world around us change. they can take away cash, God is gonna take care of me anyway, cause im his child as others and he takes care of his. Revelations prophecy that cash will be done away with. But I will not accept the mark of the beast. Christians, we should be rejoicing.We are seeing Gods work done. Get it together!!!! Jesus is coming back.

Nick
March 14, 2012 at 9:32 am

I'm not trying to start a massive debate but I'm bible believing and it says that cash Will be done with(no time frame) and everyone must take a chip most likely in the hand in order to buy and sell. It's in the book of Revelations where it talks about the anti- Christ. Anyway, for my money, no pun intended, I choose to believe the word of God.

P.S. To Eve. You sure have the right name with what you believe.

Todd
March 14, 2012 at 9:20 am

A good story was when my wife and I were shopping for New Years Eve with the idea we would just use our card. Just was we began to ring out...the systems crashed! No check book cause we left it home! So we had to call my father in law to bring cash. Lesson learned...don't always count on the card!

AZ
March 14, 2012 at 9:14 am

Cash will never become extinct, because there will always be items and services paid for which people do not want a receipt for.

Diane
March 14, 2012 at 9:14 am

Sure, lets get rid of cash, then the banks, the government and who knows who else can track everything we buy. No thanks. What I buy with my own money is my own business. I don't need to be profiled any more than I already am, based on what I spend my money on. We already have so little privacy, why make it worse? Never gonna happen.

Kimberly
March 14, 2012 at 9:12 am

I try and use cash too as much as possible. It comes in handy when doing major shopping to have a card but honestly, I think most prefer cash too. And how do you do things like pay for the donut or a soda or tip the shampoo girl or pay the babysitter, etc etc etc? Insane to think money would go out! I personally don't have a smart phone *gasp* and really wouldn't run out to get one so that I could pay my babysitter...assuming she had one too! Whip out the cash and your done. And WHY would I want to pay a 'small fee' for such things when I can just pay cash and pay no fee! That is free!

Eve
March 14, 2012 at 8:10 am

Iuse cash for any and everything people love cash so it will alwaays be here NEVER gone