I recently discussed cashless transactions with Joseph Bailey, an associate research professor at the Robert H. Smith School of Business at the University of Maryland.
Q: According to a recent Pew Research Center survey, nearly 30 percent of Americans say they make no cash purchases during a typical week. How does the use of electronic payments in the United States compare with other countries?
A: The United States is moving quickly toward more cashless transactions, but it still lags some European countries, such as Sweden, Denmark and Norway. Sweden has reached a tipping point at which only about 2 percent of transactions are conducted in cash.
In part, that’s because the Swedes are technologically savvy, they have a relatively small market and the government encourages electronic payments of its currency.
Chinese cities are also embracing the cashless life, with a mobile-phone system that uses encrypted codes for transactions. In India, some 255 million people are making everyday purchases using the Paytm virtual wallet system backed by China’s Alibaba.
Q: Will the United States catch up with the other countries?
A: If you want a picture of how we’ll handle money in the future, look at how college students manage their money. And then just imagine a world in which they are the majority, and not the rest of us who grew up in a world where we carried around wallets with paper money and maybe coins in our pockets.
Q: What are the trade-offs for consumers as we move toward more cashless transactions?
A: Consumers give up anonymity when they don’t use cash.
For example, let’s say you go grocery shopping and your payment shows whether you got a discount for using a reusable bag or paid for a plastic store bag. Marketing could be tailored to you based on how you’re perceived to feel about the environment. Or if you use electronic payments to buy a lot of fruits and vegetables, you could be pitched a gym membership because a marketer thinks you're getting fit.
Some consumers may not be comfortable with this type of marketing because they think it’s an invasion of privacy.
Q: Are there any other drawbacks to a cashless society?
A: Cashless businesses could hurt low-income consumers who mostly use cash. In addition, we eventually could see a surcharge for using cash.
Theft could also become a bigger problem. You may be less likely to be pickpocketed because you’re not carrying cash, but you might face a greater financial threat from a remote hacker or data thief who manages to hack into your smartphone.
Rivan V. Stinson is a reporter at Kiplinger’s Personal Finance magazine. Send your questions and comments to firstname.lastname@example.org.