J003-Content-The-Money-Game_SQ

Once upon a time, not all that long ago, monetary transactions were pretty simple: People were paid for work or for items in cash or with a paper check. They deposited checks in the bank or cashed them, deposited the cash or kept it in their wallets or under their mattresses, and when they wanted to buy something, they handed over the cash or wrote a check. Then along came debit cards to automatically take the money out of your bank account, and credit cards that let you spend money you didn’t even have.

Now we have PayPal and Bitcoins and online payments that use some or all of the above. Some say cash – our long-time “legal tender” – will soon be obsolete, and in fact it’s now looked on as suspect in many circumstances and despite its claim to be “for all debts, public and private,” it’s no longer accepted everywhere.  Let’s look at how this transition has come about, where it might be headed, and the very big role played by technology in the predicted transition to a cashless society.

I remember, in the early days of the Internet, when most people were very wary about buying online. Some of my friends and relatives said they would never trust a website with their credit card numbers – while at the same time thinking nothing of handing their cards to a waiter or bricks and mortar store clerk who disappeared to a back room with it, where he/she could easily make a copy of that info and use it to make fraudulent charges (something that was by no means unheard of). Those same people also had no compunction about giving out their card info to make an over-the-phone purchase.

Today, most of the die-hards have given in to the convenience factor and pay their bills online, manage their bank accounts and transfer money through the web. Amazon is the “go to” replacement for the time-consuming and gasoline-wasting chore of trudging through shopping malls and in some areas, you can even order your groceries over the Internet.  We use the web to invest in CDs, make stock trades, and complete all manner of financial transactions. For many of us, eBay has replaced the weekend garage sale and thrift shop circuit and PayPal is putting Western Union out of business.

Even when we do occasionally venture out into the big, bad world to buy those things that must be tried on or tried out or evaluated in person, new technologies come into play.  In most stores, instead of giving our credit cards to a clerk, we swipe or insert it into the reader ourselves – often at self-service stations where we also bag our own merchandise. In some, we don’t even have to use the physical card; we can store the payment information in apps on our phone and simply touch the device to an NFC-capable point-of-sale system’s sensor to make the payment.

It’s all designed to make the chore of monetary transactions easier – or some might argue that the ulterior motive is to ensure that we fools and our money are parted even sooner.  Whatever you think of the new ways, though, you have to admit that it beats sitting and laboriously writing out checks and keeping up with the cancelled ones. Once upon a time, I used up dozens of checks and a number of deposit slips every month. Now I write two or three paper checks and get paid for most jobs by direct deposit or wire transfer; one company even prefers to pay my invoices into my PayPal account.

It seems as if everybody has tried or is trying to get in on the money game now – and why not? There are big bucks to be made; after all, the keepers of the money (bankers) have done pretty well for themselves throughout history. Apple Pay, Android Pay (formerly known as Google Wallet), Samsung Pay, as well as smaller players such as Square and Venmo and wallet systems run by individual banks and retailers such as Starbucks and Walmart are all competing for a chunk of this market. Although most small businesses don’t have the means to accept mobile wallet payments, the method is gaining ground.  As of March 2016, Apple Pay claimed 12 million monthly users.

Like any technology, digital payments have both advantages and disadvantages for both buyers and merchants. Because purchases can be made without a cashier in many cases, it cuts costs for the selling entity, and many of the new technologies cost less to implement than credit card merchant account fees, which means more small businesses that couldn’t accept credit and debit cards will be able to engage in cashless transactions. For the users, it’s quick and convenient and doesn’t require carrying cash around (which can be more easily lost or stolen). Another bonus for the sellers is that this ease of use may cause some buyers to spend more often.

There are down sides, though. New equipment can require a substantial initial investment, and because the tech is new, software glitches are to be expected and tech support may be spotty. Digital wallets are cloud based so an Internet outage means businesses can’t process payments, and network congestion can slow processing down to a crawl. Then there is that old bugaboo: security. With sensitive personal information involved, it’s crucial that electronic payment solutions use properly encrypted connections and protective measures for any stored data.

Of course, traditional credit or debit card payment has its own security risks, and the big issue is the same for digital payments: authentication that ensures the user of the card is really who he/she claims to be. Many merchants have tightened up procedures for verifying identity for in-person transactions – asking for ID, checking signature against that on the card – and some cards include the cardholder’s photo on the card to make it easier.  With remote digital payments, two factor authentication (often involving answering “secret” questions about yourself or using tokens or your smart phone as a second factor) makes transactions more secure in this respect.

Although currency is still alive and well and in circulation, there’s no doubt that we are closer to being a “cashless society” than in the past. Earlier this year, Bloomberg published an op/ed piece urging the end of cash in Bring On the Cashless Future. The argument made by the article and other proponents of doing away with the dollar (and euro and peso and pound and so forth) is that currency spreads germs and is expensive to print and is often used for illegal purposes and that going “all in” with digital money would make transactions faster and cheaper.

On the other side, a big concern with that is the privacy issue. If all financial dealings are tied to our digital accounts, there is no way to buy anything anonymously. It’s not just drug lords and prostitutes and tax evaders who don’t want their every monetary exchange tracked and recorded. Think about the information that can be extrapolated from your credit card purchases concerning your health (what kind of food you buy, whether you belong to a gym or buy exercise equipment, doctors’ visits and prescription medication purchased), political leanings (candidate and party donations), lifestyle factors (how often you go out to dinner, what type of entertainment you like, whether you’re an active risk-taker who buys scuba equipment, ski paraphernalia, fast cars and small planes).

What, you don’t charge cars and planes to your credit card, you say?  But you probably do finance them through a bank and you have to register them with the government and you most likely buy accessories for them that give away the fact that you own or use them.  Increasingly, Big Data knows all, and much of what it knows is revealed through how you spend your money.

To address the privacy question, alternative electronic payment systems have sprung up. Chief among these is Bitcoin, which allows you to create an unlimited number of anonymous Bitcoin identities. Because it operates on a peer-to-peer model, there is no centralized database that holds the information regarding the real people behind those identities. At least, not yet. As Forbes pointed out way back in 2011, “the US government could easily require any business accepting Bitcoin payments (or converting Bitcoins to dollars) to collect identification information from their customers in the same way that ‘know your customer’ regulations require financial institutions to collect information about their customers.”

In fact, electronic communications, even when designed for optimum privacy, are never going to be as anonymous as using cash. It’s the nature of the beast. Speaking of which, there are some who believe the abolition of cash, followed by a common global monetary system, is the first step toward very dangerous times indeed. But whether or not you think it signals (literally) the end of the world, we can’t deny that new technologies are bringing big changes to the world of financial transactions.