The Future of Money Looks Like a Cashless Society

The Future of Money: Are We Going Cashless?

July 6, 2010

Mint.com - Most people have a love-hate relationship with the bills and coins in their wallets. On the one hand, paying with cash — once ubiquitous — can be cumbersome in today’s fast-paced environment. No wonder that it’s becoming less and less commonly used as plastic, in the form of credit and debit cards, takes its place. On the other, many still consider paying with cash the safest way to guard against sneaky bank fees and interest charges.

So how did plastic get around to winning over cash? According to the Federal Reserve, it all began in the 1990′s. Between 1995 and 2006, the number of non-cash transactions per person grew from 250 a year to over 300. Economists at Cleveland’s Federal Reserve Bank claim that cash usage peaked in the mid-1990′s (which is roughly the same time paper checks peaked.)

While it is difficult to track the exact number of cash transactions in a given timeframe, cash has clearly taken a backseat to other payment tools.

The Rise of Debit Cards

It’s no coincidence that cash usage peaked and began declining in the mid 1990′s. The culprit? Debit cards. As senior research analyst Red Gillen told the New York Times,

“When debit cards were introduced in the early ’90s, that was the beginning of the slow and gradual decline of paper checks and cash.”

The trend away from cash was further cemented in the early 2000′s. According to the Cleveland Fed, the following non-cash transactions grew between 2000-2003, with percentage growth shown in brackets:

* Credit card transactions (6.7%)
* Automated Clearing House transactions (13.4%)
* Electronic benefit transfers (15.4%)
* Debit card transactions (20%)

During the same period, the number of paper check transactions declined by 4.3%.

The debit card hasn’t lost an ounce of popularity during the late 2000′s. Just the opposite: in May 2010, ABC News reported that MasterCard debit customers spent as much on debit ($118 billion) during the first quarter of 2010 as they did on credit cards – the first time that this has ever occurred. Visa’s debit-card volume first exceeded its credit card volume for the first time even earlier, in December 2008.

The Fall of Cash

It was largely the increased convenience and safety of debit that inspired people to gradually use less cash in their day-to-day spending. Twitter co-founder Jack Dorsey spoke for many consumers when he told the New York Times that:

“The problem with cash is that it is tangible, it’s inconvenient, you have to carry around a bunch of bills and you have to continually go to the A.T.M.”

U.S. coins (namely the penny and nickel) now cost more to produce than they are actually worth. And the United States is not the only country to be witnessing a decline in cash-based transactions. The UK’s Telegraph, citing a Payments Council report, predicted that cash will be used in fewer than half of all UK transactions by 2015. The trend is already underway: just 59% of 2009′s 37 billion transactions were cash-based, down from 73% only ten years ago.

Japan, meanwhile, has reportedly discussed a total abolishment of cash in order to fight deflation in that country. London’s Times Online found that while the idea might appear to have come from “the realms of economic science fiction,” the recommendation to do away with cash completely has been seriously discussed among Japan’s financial authorities since June 2009. In all, the Times Online reports that currency in circulation is about 16% of GDP in Japan (compared with 2%-3% in most other developed countries.)

A Cashless World

The realistic prospect of an entire country abandoning cash illustrates the direction in which world commerce is headed. A whole host of forces (from government policy to consumer trends) is conspiring to make cash less and less relevant to daily economic life.

In fact, new transaction methods are popping up every day. Cell phone-based payments, for instance, have become widespread overseas in recent years and are now a standard means of paying for just about anything in Japan. The Times Online notes that of Japan’s six competing cashless payment systems, “many” are built into wireless phones. In total, Japanese consumers are estimated to carry some 120 million cashless payment chips.

In the United States, companies like PayPal are making it easy to make purchases and swap money using only a mobile phone. Rather than trying to replace credit and debit cards, American companies like Square and GoPayment are equipping phones to work with them. As the New York Times explains, the credit and debit card issuers “stay in the middle, extracting a fee with each swipe or bump” of the mobile phone. It may take a while for consumers to abandon cash completely, but in many ways, even here in the U.S., we already are a cashless society.

Contactless Cards: the Pros and Cons of New Payment Technology

Smart cards which store data will make life easier, but are they safe?

May 8, 2010

independent.co.uk - When one of our readers, Mike Watts, was sent a new contactless Barclaycard last year, he wasn't happy.

"I do not use my credit card, or debit card, in shops to pay for purchases of less than £15 and so have no use for this new contactless facility," he says. "I prefer a card that must be inserted into a payment terminal and the correct PIN entered, as it is considerably more secure."

He contacted Barclaycard to complain and ask for his old card back but got no joy. The credit card company began switching all its customers' cards to the new contactless plastic last year, and it is committed to the new system. In other words, there is no stopping progress, and Barclaycard told Mr Watts it was the new card, or no card. He chose the latter and cancelled his Barclaycard.

"If people want contactless cards then fine, but why should we all be compelled to have them?" he asks. "What happened to customer choice — or don't the banks have to take any notice of their customers?"

Mr Watts is concerned about what happens if the cards are lost? With no PIN needed a crook could simply set out on a spending spree, is his worry.

"Also what is the range of the cards and could one accidentally pay for the shopping of someone else? Finally could they be forged?"

The final straw came last month when his wife was sent her new — contactless — debit card by Barclays.

"I've written to the bank but am waiting to hear back from them. We are hoping they will send her a new ordinary card and that we don't have to change our current account to a different bank after about 35 years with Barclays. But I won't hold my breath," says Mr Watts.

He has also written to the Office of Fair Trading about what he feels is an unfair lack of choice.

He isn't the only one concerned about the new way of paying. Among a number of other readers to contact Your Money is Paul Adkins, who researched electronic payment systems when he worked for electronics' giant Philips in the early 80s.

"We discovered the best security would be offered by giving people a calculator-like device where the user had control over the keypad for entering the PIN," he says. "But this was perceived to be too expensive, and we ended up with chip cards. But who knows what is happening behind the keypad and the display? We have to take it on trust that the terminal is not compromised."

Mr Adkins — along with several other readers — believes the new contactless cards are being promoted to boost banks' profits, rather than improve security.

"The banks see contactless cards as an opportunity to make money; particularly from shopkeepers who are lumbered with the cost of providing merchant terminals and the cost of processing card transactions," he says. "We will never move to the cashless society while the banks use it as an opportunity to make money."

Are their fears justified? Are banks and plastic card companies really taking chances with our financial security as they chase bigger profits? No, says Mark Austin, head of contactless at Visa Europe.

"Contactless cards are extremely secure," he says. "They're just normal chip cards with an antennae. They work with a card reader only and the information on the card can't be picked up by anyone else. The cards have a maximum range of 5cms, so must be held close to the reader which then sends out a radio frequency. Once that's picked up by the card's antennae, the payment is made — and all in less than half a second."

He says there is no data flying around for fraudsters to steal, and no time for crooks to tap into the transaction.

"The cards are about improving convenience," says Mr Austin. "The contactless function is only used for low-value transactions and we constantly talk to the banks about them, and other changes in technology, to ensure bank customers have the best experience when using their cards."

What about the risk of cards being lost and stolen and then used in a spending spree by villains?

"That can't happen," says Barclays. "

All contactless transactions, on both Barclaycard's and Barclays' debit cards, are covered by our standard fraud guarantee, so as long as a customer hasn't been negligent with their card or PIN they will be fully covered against fraud. In addition, if contactless cards are used for a number of transactions in succession, the card will ask for the PIN to verify it is in the right hands."

In short, that means that the reassuring chip and PIN feature will come into play after as little as three or four contactless transactions. With the transaction limit set at £15, raised from £10 earlier this year, that means fraudsters would only be able to spend up to around £50 before they would be asked for a PIN. And with all plastic cards, the standard fraud guarantee means cardholders won't be held liable for any losses, as long as the card issuer doesn't suspect you of being party to the fraud.

Around 10 million contactless cards have been issued in the UK so far with both NatWest and Barclays launching cards in 2007 and Halifax later. But the number of retailers accepting them is still relatively small, so many may not yet have had the chance to try them out. However, more retailers are signing up all the time, particularly fast food chains such as Pret A Manger and Eat.

"The real motivation is speed," says David Black of Defaqto. "Quicker transactions increase turnover for shops and can reduce the number of staff required. For consumers, shorter queues increases convenience."

Londoners have experienced the contactless Oyster cards on London's buses, tubes and trains, which, in theory, have led to cheaper fares.

There is an argument that plastic cards are safer than cash. If money is stolen, you lose it: if a card is stolen, you shouldn't be liable for fraud. The industry's next step is to introduce payment by mobile phone, but that technology is a year or two away yet. In the meantime, those worried about contactless cards should vote with their feet. HSBC, Nationwide and Santander all say they currently have no plans to introduce the cards.

"Contactless technology is undoubtedly the future of payments. It simply makes life easier: it's secure, convenient and a practical alternative to cash. We know anything new and unknown can be daunting but fears about contactless security are unfounded.

As a bank, the security of money is our number one priority so if we believed there was any increased security threat with contactless cards we simply wouldn't be introducing them. The card cannot be swiped accidentally, doesn't expose personal information and will ensure the PIN is entered periodically, as well as all the normal debit and credit card protection. Countries including the USA and Canada have had contactless for a while and have seen no notable increase in fraud as a result. We are at the early adopter stage but the possibilities with contactless technology are endless — there are already plans to introduce mobile phones with contactless functionality. Payment technology is definitely coming out of our wallets and contactless cards are the first step towards that."

Consumer view: Handy, but budgeting is a worry

Contactless cards are certainly handy. They obviate the need to dig around for cash and by speeding transactions — and queues — their adoption could save us all some time while picking up a sandwich.

They also do away with the need to carry large quantities of steal-able notes and heavy coins.

But I have three concerns. First, the card companies take a cut of electronic payments from traders and even though these slivers are not apparent to shoppers, inevitably they are passed on in the form of higher prices. Then there's the question of whether it's harder to keep a track of your money if you're not handing it over in hard currency or acknowledging its expenditure with a pin code. More abstractly, I quite like the vanishing quality of cash and wonder whether allowing the archiving of every last jot of personal spending gives too much information to commercial enterprises. Not so much Big Brother, perhaps, as Big Uncles?

Intelligent Vending Machines Point Towards a Cashless Future

gizmag - Stickups are on the rise but it's not guns being pointed — its mobile phones. And you're not being robbed — far from it. You're shopping in the cashless future that is now catching on with a convergence of technologies promising to digitise money and change the way we buy.

The age of cashless transactions is here — not the end of money as much as the end of physical currency as we know it and the beginning of a networked economy of retail diversity, convenience and micropayments. Across America everything from ticket sales, laundromats, public phones, vending machines and automated kiosks are integrating USA Technologies' wireless, cashless networking services in a full scale roll out of the new digital economy. With the click of a bluetooth enabled mobile phone consumers can now shop without physical cash — leave your wallet at home.

Cashless transactions are opening up new distribution channels for many industries, including entertainment, digital imaging, manufacturing, commercial laundry and office supplies.

And with the advent of Intelligent Vending Machines (IVMs) an automated shopping experience is becoming tangible.

Initial tests have proven popular with consumers and the new Generation 5 e-Port cashless transaction device is now being used by Coca-Cola bottlers in automated IVMs across the world.

And a recent deal with telecommunications giant AT&T Wireless will soon see their telephony networks carrying transactions, which is expected to rapidly accelerate acceptance of a 'cashless society'. The AT&T Wireless-powered USA The AT&T Wireless GSM/GPRS network is available in more than 7,500 cities and towns, and along more than 30,000 of interstate highways across the U.S.

The Generation 5 e-Port can be installed into a vending machine in five minutes or less, enabling wireless connectivity to accept credit/debit card transactions as well as normal coin or bill operations. They utilise a transaction and processing data network called USALive to enable USA Technologies' customers have real-time, web-based access to sales (cash and credit), inventory and maintenance data from their vending machines, increasing profitability and functionality.

Moreover, the boosted IVMs and unmanned kiosks can be stocked with diverse materials, allowing more targeted use of retail space in malls and public spaces, maximised space-to-sales, minimized stops per asset, and limited machine down time. Expect to see a blossoming of automated, Intelligent Vending Machines popping up in more public spaces and to replace human operators for small scale transactions.

And with no physical cash IVM's are less vulnerable to theft. Combined with fingerprint recognition coming in on some mobile phones and your financial security is protected.

So start saving your coins and notes now, as this may well herald the beginning of the end for cold hard cash and the start of a growing digital economy.

Just don't lose your phone!

Speeding Along Towards a Cashless Society

August 4, 2010

goldismoney2.com - I have long held the belief that we are headed inexorably towards a cashless society. It isn't an original idea, as others think so as well. In fact, I believe an interpretation of a passage in the book of Revelations speaks to this as well — and that was written 2000 years ago.

The benefits to TPTB are many — increased visibility into what people are doing — being able to track transactions and money flows, the ability to get a grip on the illicit drug trafficing, to stop people from avoiding taxes and working under the table, increased opportunities for banks to charge fees on transactions, and many more benefits...

The infrastructure for such a system has been being built for years and is quite advanced now. Heck, vending machines even take credit/debit cards now.

I got a reminder of this today.

My daughter just started her first job at a fast food restaurant. Today was her orientation. I was so proud to pick her up from work after her first day.

The first thing she does is hand me some paperwork with a pre-paid VISA card. She tells me that this is how they will pay her — deposit the money into her card.

I got angry. I immediately start thinking of all the fees they will charge — and of course when we get home and I review the paperwork, sure enough, there are many, many fees associated with using the card (especially if you aren't careful — which most teenagers working at their first job aren't).

I want her to inquire whether she has to get paid this way or if she can still get a paper check. She is afraid to ask for fear of getting fired. I am going to find out by calling the corporate office.

So, after doing some research online — more and more companies are beginning to use these prepaid cards. It saves them the costs of printing paper checks and mailing them out. The company in question will save over $1 milion this year doing this.

I can envision a time in the not too distant future where new employees will be forced to accept this form of payment — and if they don't — they won't be allowed to work there.

The payment card is issued by VISA.

Interestingly enough, the letters of VISA equate to 666 in Roman numerals (VI) Greek and Aramaic (S A).

A one world digital currency is coming — and any person that doesn't have the mark of the beast will not be able to buy or sell anything unless they receive this mark.