For years, people have been predicting the demise of cash, and with all the buzz around Apple Pay and cryptocurrency, bills and coins do seem headed toward extinction. Yet in the past month, two tech icons have demonstrated cash’s continued vital role in the modern payments landscape–both in the U.S. and in developing countries. At its New York Hackathon, TechCrunch Disrupt awarded an app that bypasses ATMs by broadcasting cash requests to nearby users, while ride-sharing pioneer Uber announced it will accept cash payments from customers in India – a first for the company.
In a world where 30 dollars can buy a cheap smartphone which has more processing power than NASA possessed when it sent astronauts to the moon, why are these bellwethers of the digital age still endorsing a payments method that has existed in various forms since the Stone Age?
Perhaps it’s because they’re recognizing a surprising reality. As recently as 2013, cash was still used for about 85% of global consumer transactions, according to a MasterCard report. In most developing countries, it remains the default mode of payment for the vast majority of consumers–even in places like Kenya, wheremobile payments tools have experienced runaway success. And though electronic methods comprise the bulk of payment volumes in the developed world, cash is still used for a majority of transactions in countries like Germany, Japan and the U.S., particularly for small purchases. So there’s a clear demand for an app that makes cash more easily accessible. And for a company like Uber, which has struggled against a local rival in India that accepts cash, compromising its cashless ethos was a competitive necessity.
What’s more: in spite of the enduring popularity of old non-cash options and the emergence of new ones, cash still offers some compelling advantages. For starters, it’s free for customers to use, with none of the ATM bank fees or minimum payment amounts involved in card transactions. It’s accepted almost everywhere, since cash transactions don’t require the expensive equipment, electricity access and sophisticated infrastructure of e-payments – a factor that comes into play both in developing countries, and when it’s time to pay the babysitter. Cash retains a powerful emotional resonance and can help people adhere to budgets and avoidtempting impulse purchases that come with more frictionless options. And in light of recent high profile data breaches, many customers find it safer than credit cards. So it’s easy to see why many analysts maintain the belief that cash is here to stay.
And yet… it’s equally easy to understand why so many are eager to abandon it. Cash is expensive, costing $200 billion annually in fees, theft and lost tax revenue in the United States alone – with lower income people particularly affected. Furthermore, it requires considerable time and expense to replenish. It’s vulnerable to theft, and leads to increased robberies at businesses that use it most. It’s even disgusting, with one study finding that 87% of bills are contaminated with disease-causing bacteria. As digital alternatives proliferate, it’s understandable that countries like Sweden (where even homeless people accept card payments) are moving towards cash-free environments.
So will cash stay or will it go? I predict the age of cash really is coming to an end. Here are three reasons it will happen sooner than you think:
- Cash has enemies in high places: Half of the $200 billion annual cost of cash in the U.S. comes out of the government’s pocket, in the form of forgone tax revenue from cash transactions. Another billion or so is spent on production and distribution. Multiply those expenses by every country in the world, and factor the possible drop in crime that can result from going cashless, and it’s easy to see why governments are eager to jettison cash. Case in point: the U.S. is making federal payments like Social Security and veterans’ benefits exclusively electronic. And India’s government has issued biometric IDs to its citizens, laying the groundwork for a cashless society and opening the door to financial inclusion.
- Mobile payments are going global: Mobile access has spread around the world, and both feature phones and, increasingly, smartphones are making their way into the hands of consumers everywhere. Countless payments providers, ranging from global tech giants to small African bitcoin-based startups, are rolling out innovative, intuitive mobile payment options. While these tools don’t yet represent a huge upgrade over card-based e-payments in the developed world, they are nevertheless gaining traction on the road todigital innovation. Meanwhile, in developing countries, mobile money has largely sidestepped the need for a card-based payment infrastructure. Though these systems still depend on cash-in/cash-out agents in emerging economies, it won’t be long before greater acceptance of mobile money payments among retailers makes it easier to go strictly mobile. And as moremobile-friendly retailers, person-to-person payments apps and new digital approaches complement card payments in developed countries, they’re also likely to go entirely digital.
- Young people will outgrow cash: Though Millennials have thus far exhibiteda surprising affinity for cash, this is likely due to the debt-ridden, recession-scarred generation’s fear of overspending, as opposed to an affection for coins and bills. But young people are famously open to new technologies and impatient with old ones, and they’re inextricably connected to their smartphones. Once their student debt is paid down and their financial prospects more solid, it’s likely that Millennials’ already enthusiastic attitude toward mobile payments will solidify into a permanent preference. If it does – and if the mobile payments ecosystem continues its rapid expansion – the next generation might come of age in a world where payment cards are passé, and cash is simply a relic.