America's cash-free future is just around the corner

America's cash-free future is just around the corner
From Engadget - October 6, 2017

Paying with cash is not nearly as popular as it used to be here in the States. According to the Federal Reserve's most recent study, consumers used cash for 32 percent of the retail transactions in 2015, that's down eight percent from 2012. Credit and debit cards accounted for 48 percent of the total transactions in 2015. And while the demand for cash remains relatively steady, especially for small, in-person purchases (cash is used for 60 percent of purchases under $10), the rise of online shopping has fundamentally altered how we pay for goods. Online transactions have risen from six percent of the total in 2012 to 10 percent in 2015.

The US government keeps nearly 1.3 trillion dollars of currency in circulation -- $4,000 for every man, woman and child in America -- at a cost of $200 billion annually. A vast majority of those bills (78 percent of them, in fact) are of the $100 denomination. That's more than 30 Benjamins per person while $10, $5 and $1 denominations only account for four percent of the bills we use.

This trend towards digital payments is not exclusive to America -- plenty of other nations are exploring going cashless. In China, for example, more than two-thirds of all online transactions in 2009 were cash-on-delivery. By 2016, digital payments accounted for more than 70 percent of those orders, thanks to the mobile wallet wars between Baidu, Alibaba and Tencent at the beginning of this decade. This is, in part, due to the massive popularity that smartphone shopping enjoys in the country. According to a 2016 report by CNBC, nearly half of all ecommerce transactions completed in China -- worth $505.7 billion in total -- were made on smartphones in 2015. In the US, barely a quarter of all online sales were completed on a mobile device.

Nearly half of all China's e-commerce sales, totaling $506 billion, are made with mobile devices, versus roughly one-quarter in the U.S., according to eMarketer. By 2019, China's mobile sales will account for 71 percent of those sales. 2013 Bank of Canada survey found that 44 percent of transactions in that country involved the exchange of hard currency, down 10 percent from just five years prior.

"It's the convenience and the speed," Norman Shaw, an associate professor at Ryerson University's Ted Rogers School of Retail Management, told Global News. "The banks and the payment companies have done a very good job of putting tap-and-pay terminals everywhere, and consequently, it's very easy to go with your credit card and just tap and pay."

Dr. Susan Athey, the Economics of Technology Professor at Stanford Graduate School of Business, echoed these sentiments. "It reduces friction and is more convenient," she said. "As people get more used to carrying just their phone, they will be more likely to make small purchases with it."

"My kids recently set up a lemonade stand," Athey continued, "and when they accept Venmo and Paypal, they sell a lot more lemonade. Literally, they doubled their receipts from one week to another," by accepting digital transactions. The lesson here: when you make payments faster and easier for your customers, you are going to do more business.

A cashless economy can also benefit both the government and taxpayers. It helps tax collection by making more businesses part of the "official" economy, ensuring everybody pays their fair share. When every transaction has a digital fingerprint, businesses wo not be able to underreport their earnings or cook their books with the same ease as with cash. This can lead to an overall reduction in the tax rate since those that are paying their taxes are not covering for those who do not.

Kenneth S. Rogoff, the Thomas D. Cabot professor of public policy at Harvard University and former chief economist at the International Monetary Fund, argued a similar point to the Wall Street Journal in September.

"For the government, the cashless society makes tracking and collection of taxes much easier whilst committing fraud much harder," he wrote. "Whereas cash payments can be made 'invisible', every cashless (digital) transaction has a digital footprint, making it much harder to 'accidentally' misrepresent revenues. For consumers, the benefits of paying with plastic or bytes lie in its ease of use and safety, despite the continuing trade-off between ease of use and anti-fraud and identity theft measures."

The problem, however, lies in the inability of some Americans to participate in such an economy. Digital payments require, at the very least, a bank account, a mobile device and an internet connection. Even in America, not everybody has reliable access to these services. The 2013 US Survey of Consumer Finance found that 7.5 percent of Americans did not have a bank account. And while mobile phones are nearly ubiquitous, they are not universal.


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