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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
paul kelly
March 14, 2012 at 11:24 am

Just Another Way For The Camel To Get His Nose Under The Tent.

ben
March 14, 2012 at 11:19 am

It is not likely that cash will ever completely disappear for these reasons:

1. the underground economy

2. illegal drug purchases

3. political bribes

4. mafia transactions

Dayna
March 14, 2012 at 10:51 am

My husband and I live in a smaller sized town and been cashless for years. I won't purchase anything from a company that doesn't accept Visa or M/C. I don't trust them. This is now a technological world and businesses should be at the forefront of that movement. If not, who are they cheating? Their state? The IRS? I don' think so! Even our Farmers' Market accepts debit/credit cards. It can be done. I believe it's more sanitary as well. Who knows who's handled the bills previously and whether or not they're ill. Some ailments, like some respiratory infection, are very contagious. I admit it wasn't easy at first. It took discipline on our part. We found we actually spent MORE, not less, when we walked around with cash. I find it easier to track expenses, do our taxes, etc. when using electronic funds. I even used PopMoney to give my sister money to buy our mother's Yule gift. It works for us, but everyone is different.

Bill
March 14, 2012 at 10:46 am

For Jaz, Wizdom and Nick, and all of you other religious fanatics; this is not a church chat room, it's a banking blog. Render unto Caesar what is Caesars and leave him alone!

Ron
March 14, 2012 at 10:43 am

Having recently retired,I promised myself a new truck.after several attempts of negotiating price with dealerships,prices were steadily fixed.trade-in valueof my vehicle was low/loan rate was high.I came back with $10,000 cash($100's),re-evaluated trade value&drove home a new truck at an additional $1100. saving.Visual impact of CASH always wins over a cheap plastic card.My Dad's favorite saying-"cash talks,BS walks".

Bill
March 14, 2012 at 10:40 am

There is also an issue of privacy at stake here. If every financial transaction is recorded on your bank or credit card statement, then at some point, anyone with a justifiable vested interest in that information will have access to it. They can also determine where I was when I made the transaction, as well as the precise time of day. Cash is anonymous, and in a society that is quickly losing all anonymity, it is one of the few remaining ways of maintaining one's financial privacy.

Dan
March 14, 2012 at 10:40 am

Technology can be a wonderful thing when it is used properly and in moderation. For the government and financial institutions it is all about control. Our privacy has dwindled to almost zero during the information age and we follow as blind sheep becoming addicted to the gadgets and apps just as they want because they tell us it makes us more productive. We are losing the ability to communicate verbally and without the use of spell check.

The interesting thing is that technology does some wondrous things for us in our everyday life - but there is a huge difference between a tool and a crutch.

I say keep the cash and unplug once in a while!!

Petr Cech
March 14, 2012 at 10:36 am

The world without cash? Stupid idea.

JAZ
March 14, 2012 at 10:31 am

Wizdom and Nick hit the nail on the head.....God's word is truth and anyone believing in the truth of things will trust God's word over man's word. God is sending His Son Jesus back to us and that is the truth. Jesus said we can not serve God and man both. Give to Ceasar what is Ceasar's and give to God what is God's. Think about it people. Cash is the devil's handy work. The more you have of it, the more you want and the more you can't do with out it (cash) and the things you use it for. Cash can't take care of you but God your father can, Jesus your savoir will and the Holy Spirit your comforter does. What more can you ask for. When cash, compters, transportation, food, medicine and all the other things that we take for granted and depend on are all gone and none of these things can sustain us forever, God will still be there waiting for us to take his hand. God is our father, parent and like most parents, He wants to take care of us. Give God a try and see how wonderful your life will be without the worry of being able to use cash or not. God will provide....He does for me.....I know He will for you.......

nightasday
March 14, 2012 at 10:29 am

NOT likely. Use cash more often and ask for cash discount.