Are We Moving to a Cashless Society?

Given the advantages of electronic money, you might think that we would move quickly to the cashless society in which all payments are made electronically. However, a true cashless society is probably not around the corner. Indeed, predictions of such asociety have been around for two decades  but have not yet come to fruition. For example, Business Week predicted in 1975 that electronic means of payment would soon "revolutionize the very concept of money itself," only to reverse itself several years later. Why has the movement to a cashless society been so slow in coming?

Although electronic means of payment may be more efficient than a payments system based on paper, several factors work against the disappearance of the paper system.

First, it is very expensive to set up the computer, card reader, and telecommunications networks necessary to make electronic money the dominant form of payment. Second, paper checks have the advantage that they provide receipts, something that many consumers are unwilling to give up. Third, the use of paper checks gives consumers several days of "float"-it takes several days before a check is cashed and funds are withdrawn from the issuer's account, which means that the writer of the check can earn interest on the funds in the meantime. Because electronic payments are immediate, they eliminate the float for the consumer. Fourth, electronic means of payment may raise security and privacy concerns. We often hear media reports that an unauthorized hacker has been able to access a computer database and to alter information stored there. The fact that this is not an uncommon occurrence means that unscrupulous persons might be able to access bank accounts in electronic payments systems and steal funds by moving them from someone else's accounts into their own. Indeed, this happened in 1995, when a Russian computer programmer got access to Citibank's computers and moved funds electronically into his and his conspirators' accounts. The prevention of this type of fraud is no easy task, and a whole new field of computer science is developing to cope with security issues. A further concern is that the use of electronic means of payment leaves an electronic trail that contains a large amount of personal data on buying habits. There are concerns that government, employers, and marketers might be able to access these data, thereby encroaching on our privacy.

The conclusion from this discussion seems to be that we are moving more rapidly to a payments system in which the use of paper will diminish, although it is likely to be a gradual process that may not reach fruition for 10 to 20 years.