The End of Cash: Not so fast

For years, I have noticed more and more frequently that I don't have any money.  Or rather I don't have any cash.  Usually this realization comes when I'm getting ready to travel since like everyone I need to keep a few dollars on hand for tips and/or to buy a snack on a long flight. But the need for cash on hand is rapidly diminishing as more and more of the world moves to some form of ecommerce.  Whether this transformation takes place because of the prevalence of credit/debit cards or the rise of new payment channels such as smartcards and m-payments, it is undoubtedly happening.  On a recent flight, I came face-to-face with the fact that most airlines now routinely have "cashless cabins" which means that they will only accept credit cards even if all I want is that $3 bag of M&M's or maybe the full-fledged $5 snack box.

According to a recent report by the Dutch consumer association Consumentenbond, The Netherlands could be cash free by 2015 as the population migrates to cards and mobile payments. The Dutch are not the only ones considering and tracking towards a state of "cashlessness".  Australia is also moving closer to becoming a cashless society, according to new figures that indicate ATM cash withdrawals have dropped to their lowest rates in six years.  To some, Australia represents the test bed for the "cashless" society with four separate stored value smart card scheme trials in process right now in strategic areas of the country. Yet, while some are fearful of a move away from cash others see parallels to previous economic shifts where societies have moved from one medium of exchange to another.  Throughout history, we have rotated from shells to silver to gold and finally to paper. Depending upon where and when you lived, you might–at one time–have used all of these and more to purchase a good or service.  

For more than 1000 years, cowrie shells were the preferred unit of exchange for most of the "developed" world.  During my visit to the Shell Museum (not the oil company–but rather an entire museum dedicated to seashells), I read quite a bit about the value assigned to cowrie shells when they were the preferred currency of the day.  Thanks to this outing I also know how many cowrie shells it would have taken to buy anything from a goat to a spouse–you really can never have too much information.   But I digress–the point of looking at the history of cowrie shells as currency was just to show that anything (even shells) as long as they are accepted by and given value by the population can serve as a unit of exchange.  So why do so many people dread the transition from representative paper to representative digital currency? 

Let's face facts–when we talk about a cashless society what we're really talking about is the disappearance of representative or token paper and metals.  Unless we are planning to abandon ownership–which I don't think anyone (at least anyone in the mainstream) is advocating, we are simply witnessing the shift from one form of currency to another. However, the shift to a purely digital form of currency may be more labor and technology intensive than any previous transition because it will be currency without physical substance. 

There is a natural, very human tendency to feel reassured by the presence of the physical.  I own a car–I can see it, I can sit in it and I can drive it. I can also own a star but chances are I won't be able to see it or touch it and someone else own it too.  Now which would you rather I use as collateral to buy your house?  I'm betting you would want the one you could actually see and touch.  But every day I and billions of others that the bank's records of my digital currency–which can't be seen or touched–can pay for purchases from lifesaving medical care to chai lattes.  And it is usually only when my bank miscalculates or makes an error that prevents me from making a purchase that I even notice my lack of cash.

In a WSJ op-ed piece, Elizabeth Warren stated that "Banking is based on trust. The banks get our paychecks and hold our savings; they know where we spend our money and they keep it private. If we don't trust them, the whole system breaks down.  And according to a survey by Forrester Research, consumer trust in financial institutions is returning.  But big banks have a long way to go.  As the world increasingly relies on digital currency, all banks–big and small–will have to evaluate and in some cases enhance their existing technology to reduce errors, increase efficiencies and add transparency.  

As I wrote last year in Would You Bank With Your Bank, technology will play a key role in helping banks to repair and retain trust by enabling an accurate, timely and hopefully a holistic view of account transactions for all of their customers whether retail or corporate regardless of channel, currency or geography.  Until banks and other financial institutions can embrace and implement the type of confidence building and inspiring technology that can provide real indisputable transparency, I can't see myself or anyone else giving up on cash altogether anytime in the near or distant future.