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This is part three in a three-part interview series first published on Mobile Payments Today's sister site ATM Marketplace. In part one, Wolman discusses the mythology of money. In part two, he talks about the psychology of money. In this final installment, he offers a look at the technology of money.
We don't think of money as a technology but it is — in the Webster's sense that says technology is "the application of scientific knowledge for practical purposes." The scientific knowledge behind money is economics, and one of its oldest tools is the exchange of value for value.
Early in human history, this meant bartering for life's necessities — firewood for grain, maybe. As civilization became more sophisticated, so did the technology of money. Over a couple thousand years, it morphed from bartered crops to paper currency — with countless incarnations in between.
And now, says David Wolman, money is morphing once more. To illustrate one of the directions the digital evolution of money might take, he tells a story in "The End of Money" about Sonu Kumar of Delhi, India.
Kumar runs an electronics repair shop. It's a cash business and with each payment, he stuffs a few more 100-rupee notes into his shirt pocket. Business as usual. What is business far from usual is what Kumar does with his cash at the pharmacy across the street:
Kumar, who is twenty-one, walks over and greets the pharmacist. The young repairman places 1,000 rupees worth of bills on the counter, pulls out his cheap-o Nokia cellphone and starts punch in a few quick codes. A moment later, he receives a text message confirming that his savings account with the State Bank of India has been credited 1,000 rupees.
Sharma the pharmacist also enters numbers on his cellphone. The cash on the countertop is rightfully his, as if he'd made an ATM withdrawal, so his bank account is debited 1,000 rupees. That's it. They're done. It's a decidedly undramatic exchange. Yet the technology powering this brief transaction is being heralded as one of the twenty-first century's most promising weapons in the battle against poverty. For cash, it could prove to be the angel of death."
Kumar and Sharma are still engaging in a cash transaction to be sure. One that’s just a bit more circuitous than if Kumar had simply gone to an ATM. The thing is, he didn't. And if his customers conducted their transactions in the same way as Kumar and Sharma, they wouldn't either.
Which brings up the inevitable question:
ATM: Do you think that cash should go away — or even that it could?
DW: No and No. With asterisks. I think eventually it could go away. I certainly don't think it should go away prematurely. Then you're talking about stiffing the 99 percent to the benefit of the 1 percent. You're talking about people who still depend on cash tips for a significant portion of their income. And until we have technology that can take care of them sufficiently, it would be foolhardy to express bouncing-out-of-your-chair enthusiasm for the cashless future.
I do think that cash is being subjected to a sort of "death by a thousand cuts"; I don't know if we're at 981 or 982, but it's happening and I think now more than ever there's this pileup of forces attacking cash like never before.
One aspect of this death by a thousand cuts has to do with all of the enthusiasm about alternative currencies and virtual currencies and community currencies. It's Facebook credits and Bitcoin and Ven and Linden Dollars traded in Second Life. All of these things exist in the digital world. They're real forms of money. They have an exchange value with the dollar — a quoting exchange, or whatever you're supposed to call it.
It might just be that we have this rainbow of currencies in the near future that we can transact with through our phones and maybe there are physical versions of them. And if you still like using the dollar, then you use the dollar. But if you're heading to Disney World and you can get some kind of discount by being paid for something in Disney Dollars and you actually want to have them for an upcoming trip, then you can accept them.
Disney Dollars are a totally legitimate form of alternate currency, as are airline miles, for example. Airline miles circulate and are a medium of exchange and all of that, but there's no tactile element to them and the world can still be spinning on its axis, despite the fact that you can't get airline coupon miles out of an ATM.
ATM: But you can't buy groceries with airline miles.
DW: Cash has obvious benefits … it can be a very fast means of transaction and of course the near universal acceptability aspect of cash has been such a tremendous success and a civilization-empowering technology. But cash is just another technology.
And this is where I have no problem stepping up to the ATM industry. Instead of someone earning some honest income in Delhi and then riding the bus for two days to the countryside to deliver some paper money to relatives in a poor village and then two days back to their home apartment and their job, now they can essentially text the money to those loved ones in the countryside and now they haven't spent that money on the bus, they haven't lost four days of income generation, they didn't have to pay someone to look after their shop. Those are tremendous costs of cash and the paper is sort of at the root of all of that.
Right away people say, "What about the fees the merchants charge, or that the telecom companies skim off the top, or what about the privacy concerns?" Those are legitimate concerns, but ask the people who are adopting this stuff so incredibly fast how they feel about those fees.
There's a big part of the book about privacy concerns and regulatory questions — you know, what happens when telecom companies start eating the lunch of the banks and acting more like financial institutions. We need to be very careful about that. It's one thing if AT&T dropped my call with you right now, it'd be a bummer, but I'd just call you back. But what if they drop my money and it just vanished out there. That's a totally different bag. But again the value proposition with the technology is so apparent — there's a reason why everybody is racing into this space.
And what this means for the bigger picture — could it be done, should it be done, do we want to hurry up to the cash of the future? I don't think it's going to be anything along the lines of a delivery effort, I think it's going to be a lot like modern day society, with bank branches closing and cash being further and further marginalized because people say they don't need it or don't want it except for those handful of places where they do need it and want it. But those circumstances or those occasions will be come fewer and fewer and farther between.
Ultimately, Wolman likens the end of cash to the quiet disappearance of payphones. Nobody made us stop using them. Mobile phone manufacturers and carriers just made it economical and far more convenient for us to use their technology instead. Now our children's children will have no idea where Superman changed clothes.
While countries such as Sweden and Nigeria are going cashless now (not without issues), the U.S. won't follow suit anytime soon. We still use cash for almost 60 percent of our transactions, and there's an American individualism that doesn't like mandates.
But the direction is clear. ABC News reported recently that at card-issuing banks Citigroup, MBNA and J.P. Morgan Chase, the use of plastic is up 54 percent since 1999. And mobile payment providers are multiplying at a pace we haven't seen since the Internet boom. When the power players emerge, consumers will stream in from the sidelines. Whether cash then fades away or the terms in the debate simply change from "cash vs. plastic" to "cash vs. mobile wallet" remains to be seen.
For more on this topic, visit our trends/statistics research center.