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The End of Cash

April 13, 2014

The first blog I ever wrote was about a cash card: Coins to Electronic Payments.  I was heartened by the prospect that the Royal Canadian Mint was developing a replacement for coins.  Now I read, in “MintChip, Royal Canadian Mint’s Digital Payment System, Being Sold Off”, that their proposed system is about to be handed over to a private developer.  Now I’m disheartened that this project may come to an end.  The purchaser may kill it off in favour of their own competing product, or they  may just fail to develop it properly.  What will happen to a replacement for coins now?

Consider how we use coins now.  A good replacement will have to replace all of those aspects of coins.  Something that you can carry in your pocket is pretty easy.  A plastic card with embedded electronics would even be lighter than a bunch of coins.  More difficult is to make it self-contained.  The money would really have to be stored on the card.  It couldn’t be like my Tim Horton’s card where the money is associated with the card, but it’s really stored in a bank account.  That card is actually a Prepaid Debit Card.  A secure card with some memory should be possible these days, so that the money could be actually stored on the card.  Even more difficult is to develop something that’s accepted as widely as cash.  This feature is going to require payment or reload terminals.  That’s where development is needed, along with cooperation from retailers and the public.  There’s also no transaction costs for payments in cash.  This feature too should be retained for an electronic coin replacement.  Otherwise, some people will continue to use coins.

The banks, of course, already have an electroning payment system, with their credit and debit cards.  People already use them, and use them widely.  I’m sure that the banks would like to convince all of their customers to stop using cash, and use only their credit and debit cards instead.  I understand that the future will bring smart phone equivalents, using their existing payment system.  That technique will certainly appeal to many people, particularly those who already have smart phones.  I notice that many people seem not to care about transaction charges, particularly if they are hidden from them.

Certainly retailers want to eliminate cash, mainly because of the handling and processing costs.  Think of cash register drawers, obtaining and depositing cash at banks, and time spent giving change.  Of course, they also want to retain cash payments as long as customers want to use cash.  The banks too want to eliminate cash, mostly for the same reasons.  The Mint wants to eliminate coins, because of the production cost.  That’s why they were looking for an electronic replacement.  With all this pressure, something’s going to happen.  What will it be?

How about the African solution?  Many African countries have an impressive system, one that allows people to make payments through text messages on a basic mobile phone.  With this system, there’s no need for a smart phone and no need for Internet.  Most of the customers don’t even have bank accounts.  It’s called M-Pesa.  Here’s how it looks: Why does Kenya lead the world in mobile money?  The magic part is that the telecom company processes the payments.  That can’t happen here because here only banks can do that.  I’m disappointed.

 

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