Recently I read an awesome article from Fortune magazine called the "Death of Cash". The article mostly talks about Jack Dorsey, co-founder of Twitter and CEO of Square, an upcoming company that a couple years ago released a small credit card reader that could be plugged into the iPhone and accept payments. More recently, the company has released an app called Pay With Square that allows customers to make purchases without even taking their phone out of their pocket.
A lot of other companies are also starting to produce technologies that allow users to make purchases straight from their smart phones. One of the most popular is the Starbucks app that allows customers to essentially do the same thing as Pay With Square, but only at Starbucks. This new trend in mobile phone payment caused Fortune writer Miguel Helft to presume that cash will soon become obsolete.
This is an interesting idea really; it is possible that in the future, paper money will not exist? All of our money will be simply be bytes of data on a computer that can be sent from one person to another. This obviously has its limitations. For one, a lot of stores have to offer the mobile payment option before people start using it and currently, the majority of stores are not offering. Second, not having cash means that everyone needs to have a smartphone to make these payments which at the moment is unrealistic. Currently, around 50 percent of people own smartphones. This is a high number but it would need to be higher for mobile payments to become the norm. Also, phones are unreliable sometimes. If my iPhone was also my only wallet I would have to put a really protective case on it, and then I still wouldn't feel safe.
My point is that cash will never disappear entirely, but it is possible that cash will become much less common. In the future, if you need to lend a guy 5 bucks, all you would need to do would be to press a few buttons on your phone, as easy as sending a text message. Stores and restaurants could charge you by name, matching your picture with the people who are currently in the store by GPS and you would need only to sign off on the purchase, no ugly cash transfer or credit card payments (though this may make that part at the end of the date with the argument about who pays for dinner a little awkward).
The implications of this society are interesting. We already use fiat money. Cash is made up. The Fed controls how much is in circulation, the people decide that they will accept cash as payment but really, cash is just made up. To go from made up dollars to made up bytes of data shouldn't be too hard. But I think people might be a little nervous about making the switch.
The perks of paying for things through a smartphone are obvious: for the customer, discounts and coupons could be used much more easily, for the store, all purchases can be tracked easily and advertisements and discounts could be better targeted, and for everyone, payment would be much faster. If the perks can outweigh people's fears, then I am confident that many people will make the switch from cash to phones.
This has interesting implications though. When I think about a world without cash, I have to ask "what about the kids?" Imagine our kids (generation Z) growing up and never seeing paper money in their lives. What will they think money is? Sure it could be a more friendly society, you can walk into the ice cream shop and just say "put it on my tab." But it will also be a confusing society. Growing up without being able to see money makes money seem not real. Its hard to trust a banking system made up of bleeps of data. We have grown far from the days where money was backed by commodity, but even today some people want to go back to the gold standard. If people struggle with seeing the value in money now, how will they fare when there is no physical bills?
Truly it doesn't matter though. If "5 dollars" taken out of an account of money still equals one burrito, I will be happy to make a big switch to mobile payment. In the end its as easy as that. People will make the switch because of the perks I said and then their friends will make the switch because other people are. I don't think cash is going to die anytime soon, but it has a bleak future.
You have a interesting topic here in discussion. I do also agree that many people would make the switch to paying with their phones to do convenience and ease through which it can be done. But I feel that there are a lot of risks with this transition. What happens if you lose your phone or it becomes stolen? Suddenly your money is being handled in a situation that could become very bad very fast. Secondly, I too would have much difficulty trusting a banking system "made up of bleeps of data." Given the technology and number of hackers out there, whose not to say that the system could be overrun and millions of people ruined?
ReplyDeleteAs for Generation Z, a dollar bill would be something vintage, something "old-school" like vinyl discs are to much of our generation. Could this in fact raise the value of cash? This quickly becomes a larger interaction with economics and the reserve but all together this is an interesting transition that many will be watching with keen eyes as to how it pans out.
I've been following the progression of Square and Square-like companies over the past few years because they provide a service that piques my interest. I personally love the idea of financial transactions going digital, because (and I disagree with Shawn here) I believe a digital economy is a safer and more effective economy. Much like a credit or debit card, a lost phone can simply be deactivated, whereas cash --and to a lesser extent, checks-- do not have that same luxury.
ReplyDeleteAs Shawn mentioned (vinyl discs, perms, etc), style and culture progress. Economic and financial aspects are no different. Chris mentioned the use of gold and silver to back US currency up until President Roosevelt. American currency has undergone massive overhauls in the past, and these changes become the new norm, just as digital transactions would.
Finally, one argument I would love to delve into is how digital payments would affect our actual economy. With money more accessible, would Americans spend more? Would cellphones begin taxing this service, discouraging spending? Obviously data that currently does not exist is required to further this investigation, but it is certainly a path I would like to pursue in the future.