The introduction of each new digital payment system usually brings extensive commentary about the inevitable obsolescence of cash. Just as debit cards made checks obsolete, the expanding fintech industry has given birth to an enormous batch of new apps for making payments and exchanging money. In the event that a product must be exchanged or returned, a lost receipt is no longer a problem.
Digital payment systems have security advantages over cash. If cash gets lost, it is gone. If a cellphone gets lost, most users have anti-theft software installed, which can be triggered with a phone call. If not, a call to the wireless service provider can usually result in having the device disabled.
1. Cash Is No Longer King
Tufts University’s Institute for Business in the Global Context did a cost/benefit analysis of cash usage in the United States. The study had five key findings: The costs to consumers, businesses and the government resulting from the use of cash exceed $200 billion per year. An economy based on cash intensifies wealth inequality, as unbanked individuals generally spend an extra $4 per month in fees to access cash when they need it. Unbanked individuals must also pay extra to borrow money through such sources as payday loans and buy-here-pay-here auto loans. Consumers must spend time and effort to access cash, while businesses must spend money to transport cash. For businesses, theft of cash is the most significant loss resulting from its use. Under-reporting of cash income is responsible for 84% of the $400 billion in annual unpaid taxes.
2. The Need to Fight Illegal Money Flows
Cash-fueled, illegal money flows facilitate a broad range of criminal activities. The equivalent of $1 trillion per year is used to finance corruption. Other activities fueled by illegal cash flows include the financing of terrorism, human trafficking, tax evasion, theft, fraud and the illegal drug trade. There is a current movement to eliminate high-denomination currency such as the $100 bill and the €500 note to make such activities easier to detect. Former Treasury secretary Larry Summers suggested a global agreement to stop issuing notes worth more than $50 or $100.
3. Increased Use of Cash Alternatives
Non-cash payment volumes have continued to grow worldwide at the rate of 7.6% per year since 2013. People in Finland have been the most active users of cash alternatives, making an average of 450.7 non-cash payments in 2013. The United States had the second-largest number of non-cash transactions during that year, with an average of 389.5. In North America, checks were used for only 12.7% of non-cash payments during 2013, compared to 22.5% in 2009.
The 2015 Debt Issuer Study was commissioned by the PULSE debit/ATM network, which is owned by Discover Financial Services (NYSE: DFS). The report disclosed that during 2014, debit cards were used for point-of-sale purchases an average of 21.2 times per month. Approximately one-third of those transactions were for less than $10. Such small purchases were historically made with cash. The 2014 average number of debit card purchases represented a 32% increase since 2005. During the same period, average monthly ATM withdrawals declined from 3.4 to 2, indicating a reduced usage of debit cards to access cash.
The use of mobile phones at the point of sale (POS) to pay for goods and services is called proximity mobile payment. One forecast called for an increase in proximity mobile payments by 210.7% to $27.05 billion in 2016, compared to $8.71 billion in 2015. By 2019, the total could increase nearly tenfold to $270.45 billion. At that point, any form of cash might be a collector’s item.