Cashless society

A cashless society is one in which people do not use hard currency or checks but instead make payments electronically. Such payments include the use of credit and debit cards as well as electronic funds transfer (EFT), such as person-to-person (P2P) online money transfers. EFTs can make life easier; travelers, for example, do not have to buy foreign currency. A subset of the cashless society is the cashless bartering society, a type of alternative currency system, in which people trade items or services for goods—for example, a person might wash dishes as payment for a meal or tend a collective garden in exchange for credit at a farmers' market.

Many societies are moving toward cashless exchanges as online shopping becomes more common, and banks offer more electronic payment options. Some countries, such as Sweden, have seen cash transactions dwindle to just one in five payments. While many Americans use cash less often, in 2016 nearly 9.6 million households did not have bank accounts, and many were unable to access digital monetary transaction systems.

Background

Although electronic financial transactions seem like a twenty-first-century invention, the earliest electronic fund transfers (EFTs) date to the nineteenth century. Western Union first introduced the service during the 1870s. The next development took place in 1918, when the Federal Reserve of America began using the telegraph to transfer money.

EFT developed more quickly beginning in the middle of the twentieth century. Diner's Club International introduced independent credit in 1950. American Express debuted in 1958 and introduced the first plastic credit card a year later. Computers, which were primarily developed during the 1940s, became more available to businesses, and banks began to rely on them to conduct transactions. EFTs became so common that an independent agency, the Automated Clearing House (ACH), was developed in 1972 to process transfers. By 1980, technology permitted people to make direct purchases over the telephone, and in 1996, Google introduced Google Checkout. This offered simplified online payments and allowed users to store credit and debit information and addresses. It also provided protection against fraud. The rapid adoption of personal computers and greater internet use increased e-commerce development, and new payment systems, such as PayPal, debuted.

Technological advances of the twenty-first century boosted EFT. As cellphones became more advanced beginning about 2007, more people began to use them to perform duties that had been done on personal computers. Banking apps became common as people paid bills electronically and managed their accounts on their phones. People could also conduct point of sale (POS) transactions, such as paying for groceries, by placing a cellphone against a business's digital reader, a process called a mobile checkout.

The idea of currency changed as well. Bitcoin, the first virtual currency, was introduced in 2009. This and other cryptocurrencies gradually gained traction over the next several years. As of 2017, nearly ten million people used the virtual wallet Coinbase, an online platform for buying, selling, transferring, and storing virtual currency. Cryptocurrency is one example of alternative currency. Another type is a credit from a business, such as points for shopping in a store, that can be used for purchases. Detergent has frequently been used as an alternative currency by thieves, who trade Tide for drugs.

Overview

Development of cashless societies is largely due to technological advances—such as smartphones—and financial crises. Technology has made EFTs more secure and convenient. Financial crises often leave communities with little available currency. For example, when the global recession of 2008 struck, several countries developed alternative currencies. Greece developed a barter economy, the TEM, in 2010 when it experienced a long-running debt crisis and the banks limited withdrawals. TEM—the Greek acronym for Local Alternative Unit—stimulated the economy. Users get an online account and accumulate credits. They must spend the credits in the community—this ensures the local economy benefits—and can accumulate no more than 1,200 TEMS, so the units continue to circulate. The TEM kept local businesses afloat and allowed people to continue to shop when currency was unavailable.

Like other countries, the United States is moving toward becoming a cashless society. CreditCard.com reported that noncash payments in the United States were increasing 5.3 percent a year between 2012 and 2015. About 12 percent of Americans reported in 2016 that they never used cash. More than 69 percent of non-cash payments in the United States in 2015 were made with debit cards, nearly 34 percent were credit card purchases, and more than 17 percent were checks. The remainder were ACH transactions. These included debit transfers (nearly 14 percent) and credit transfers (nearly 10 percent). The dollar value of ACH transfers, which often include payroll and bill-paying transfers, was more than $144 trillion, while debit and credit cards accounted for nearly $6 trillion.

Banks and governments have supported the move away from cash for a variety of reasons. Printing and handling currency costs money, and cash is much easier for criminals to hide and use in secret. Some banks, including the European Central Bank, have begun to phase out large bills to thwart criminals and terrorists. Advocates of a cashless society point to the ease with which criminal organizations, including terrorists, can move cash undetected. They point to tracking systems that account for EFTs and ensure people pay their fair share of taxes, for example.

As EFTs have become more common, some critics have pointed to drawbacks. Among these are instances when people use small amounts of cash, such as change dropped into a donation box on a store counter, or a few dollars given to street musicians. Others, such as low-income workers, may not have bank accounts—according to the 2015 Federal Deposit Insurance Corporation National Survey, about 7 percent of Americans had no bank accounts. Other people feel more comfortable having and using cash and may not trust banks. Some people raise concerns about privacy because of these tracking systems. They fear individuals' financial history could be bought and sold.

Sweden, where many bank branches do not accept or dispense currency, has addressed many of the drawbacks of a cashless society. Situation Stockholm magazine, for example, has provided credit card readers to many homeless people, who previously relied on cash handouts. These homeless individuals sell the magazine to earn money, and many have reported selling more copies because people can pay with credit or debit cards. People use apps that allow them to transfer money to others—such as when splitting a check in a restaurant—to adapt to the lack of ready currency.

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