Cash is for losers

Smaug would be turning in his grave. Lounging on plastic isn't too dignified a pursuit. But if the Economist is to be believed, the days of horded coins and the pleasing weight of wealth may soon be over.

Imagine - you are stood at the till, with any item costing £1. Would you rather pay just 97p? A saving of 3p - the sort of thing I like. What if by adding a penny sweet to your bill, you could reduce the total cost to 2p? A saving of 98p.

I hope you'd agree that option 1 (cost £1) is the least attractive. If you're the sort of chap who pays cash, this is your only option.

With an American Express or Morgan Stanley Platinum card, you'd only be paying 97p though, thanks to their 3% cash back. With a Lloyds VISA debit card with "save the change", your £1.01 of purchase will only cost you 2p. They'll round it up to £2.00, pay your 99p into a savings account and match it with an extra 99p (until 31 March). Something of a windfall if you're skilled with a fuel pump.

The basic fact, hammered home by Natwest with their "the penny's dropped" campaign in recent months, is that cash seems less attractive than electronic alternatives. And that's now. Scroll things on a couple of years and it will become even more so.

The Economist (17th February), their wonderful cover lavished upon left, conduct a lively review of the history and probable demise of cash.

Payment with mobile phones, or "wave and pay" cards or "smart cards", along the lines of Oyster, is cheaper and quicker. It doesn't fill your pockets with deadweight copper. It's also proven technology, in daily use the USA and Japan, where smart card operator Edy processes 15m transactions every month.

If you're a Londoner you will soon be able to do so yourself with the "Squid" card - an Oyster for convenience stores. Like payment through mobile phones, this instant electronic transaction does away with a retailer's need to carry a cash float. Japanese retailers are offering discounts to incentivise electronic payment.

So electronic payment - whether through a phone or a card - is faster, more convenient and saves you money. Why wouldn't you convert?

It's a stark question for a chap working in the ATM industry. People pay a surcharge to withdraw their cash from our ATMs, as it is more convenient than finding a free machine to use. Convenience is king. This is the real worry - as well as cheaper and faster, the alternatives to cash are much more convenient.

It's a problem faced universally by industries that rely upon the real world physics of trading matter. If someone else can offer the essential same or more whilst largely defying physics - by side-stepping those real world rules and limitations - it may be time to get those share options out of the draw.

The Economist rightly points to one advantage cash retains - anonymity. I've heard stories of shops where people buy photographic nudes. Though I've never seen one myself, I'd imagine those shopping at one of these places might chose a method of payment which will ensure the transaction is not logged against their name, address, etc.

In the mucky, twilight world of vice and crime, perhaps cash will rule on - King of the Underworld.


For the Economist story: http://www.economist.com/opinion/displayStory.cfm?Story_ID=E1_RSDNRJD