The Cashless Society Meets the Loose Change Economy

Money as a museum exhibit. You might think that is where we are headed: every transaction now conducted via plastic or smartphone. Cash a relic of a bygone age, a freakish  reminder of our historic barbarism, like the stone heads on Easter Island or the pyramids or fossilized footprints in the African sands.

But it turns out that we are moving on parallel tracks. Mobile payments are growing - as much as 43 percent over the next four years according to the following article. And cash use is dropping. But it has not disappeared. We recognize its utility even as we drop our packages, phones, brief cases and backpacks to dig into our pockets for the odd coin.

We seem to be ambivalent. There is no real need for mobile payments, which may be inhibiting their growth, but we seems fascinated by the possibility as much as by the utiliity. We do it because we can, not because we must, or should.

However, there was a moment when tablets were written off as a toy and when Siri seemed like a cute but impractical feature. The ways in which we adapt to new technologies remain mysterious and passing strange. Which may be just as well because if we could predict what will work with too much certainty, we would inevitably draw inaccurate conclusions, leading us to follow the obvious down the wrong path to oblivion. JL

Gregory Schmidt reports in the New York Times:

The rise in mobile payments will not necessarily lead to a cashless society, but rather a society with less cash.

MAJ. RON BUSROE of the Salvation Army has no doubt that people are carrying a lot less cash.

Money raised by the organization’s annual Christmas kettle program fell 10 percent last year to $138 million, he said. Some of that drop could be attributed to the decline in foot traffic at retailers and fewer days between Thanksgiving and Christmas, but a big factor, he said, was that people have fewer coins and bills in their pockets.

“With a cash donation, you hear the bell, you see the kettle, you reach in your pocket, you toss in your change and you keep going,” said Major Busroe, the Salvation Army’s national secretary for community relations and development.

In a study on consumer trends, the Aite Group, a consulting firm in Boston, reported that cash use had dropped 3 percent in 2010, and it forecast a 17 percent decline by 2015.

The Salvation Army is still trying to figure out how to adapt, but many businesses have already turned to other means of payment. Airlines, for instance, now take only credit cards for in-flight food and drinks. Las Vegas casinos will soon accept prepaid cards at slot machines. Even some strip clubs are testing alternative currencies; one in New York offers its own “dance dollars.”

And some businesses have actually benefited from the move away from cash. A 2009 study of New York taxis found that drivers’ tips rose when they started accepting credit cards, to an average of about 22 percent from 10 percent.

The drop in the use of cash in the United States has been driven by a rise in the use of credit and debit cards. But more consumers are turning to mobile payments, using their smartphones to buy items as ordinary as a cup of coffee. Mobile payments doubled in the last year, according to Forrester Research, which predicts that the market will continue to grow 43 percent annually through 2018.

But the rise in mobile payments will not necessarily lead to a cashless society, but rather a society with less cash. People will still use cash for quick transactions like paying their babysitter or the person who shovels their snow. Some New York restaurants stubbornly cling to the cachet of their cash-only status. And criminals favor cash because its anonymity makes it harder to track.

Mobile payments are still a nascent market. Only 16 percent of mobile phone owners in the United States used a mobile wallet to make a point-of-sale transaction in the fourth quarter of 2013, according to a survey released by the Yankee Group.

“It’s important to recognize that when we look at the mobile wallet, we’re not looking at a displacement technology, at least not in the foreseeable future,” said Jordan H. McKee, an analyst at the Yankee Group. “We’re looking at a relatively lengthy adoption timeline.”

Consumers are holding back because of a lack of compelling need; cash and credit cards still work quite well, he said. “There is no overwhelming need to adopt a mobile payment solution as it stands today.”

Business owners like Humberto Ricardo are waiting to see what trends develop. As the co-owner of Third Rail Coffee, a small chain of cafes in Manhattan, Mr. Ricardo can react quickly to the shifting needs of his customers.

His first Third Rail location, a tiny shop in the West Village, had an unusual customer when it first opened: Jack Dorsey, the co-founder of the mobile payment system Square. Mr. Dorsey argued for the benefits of using Square, like the ease of setup and the low transaction fee of 2.75 percent. But Third Rail catered mainly to New York University students who were in a rush to get to class, and Mr. Ricardo preferred cash because anything else would slow business.

When he opened a second shop, this one in the East Village, he found a community with a different lifestyle, so he opted to go with Square to process credit card payments. “I felt like we were losing too much business,” he said. The new location had more shelf space, too, and could carry more merchandise. “The ticket items are a little higher, so it’s a little less reasonable to expect that people will have cash.”

Mr. Ricardo says he is waiting to see what technology customers adopt. “It’s like a foregone conclusion in people’s minds that cash will diminish over time, but we’re not there yet,” he said.

The field is crowded with competitors. Companies like Google and Isis battle with PayPal and Square to be the top wallet, and Apple could topple Near Field Communication technology with its iBeacon, which uses Bluetooth Low Energy for data transmission.

Standing out from the fray is Starbucks, which received much attention when it unveiled its latest app update on March 20, offering a streamlined interface and, for the first time, the ability to tip its baristas digitally.

“Tipping was a feature that customers had been asking us for a long time,” said Adam Brotman, chief digital officer at Starbucks. “They had been carrying cash less and less.”

Starbucks introduced mobile payment features in 2011, combining them with its loyalty program in an app that has gained 10 million users drawn to its convenience. The coffee chain reported last month that mobile payments were 11 percent of its weekly in-store transactions in the United States.

The app has attracted the interest of other retailers, but in an interview on CNBC, the company’s chief executive, Howard D. Schultz, played down the prospect that the company would license its app.

“We realized that we’ve created something that is highly viable not only inside Starbucks, but outside as well,” he said. “Most traditional retailers don’t have the competencies, the resources or the flexibility to make the investments today.”

Mr. Schultz added, “It’s too premature to say exactly what we are going to do.”

Like retailers, charities are also looking for options as they feel the pinch of donors carrying less cash. Some organizations have created apps to ease giving, but because donations are not allowed on iOS devices, the apps tend to focus on organizing fund-raising goals. Apps that include a “donate” button take users to the charity’s mobile website, where they have to register to make a donation.

The Salvation Army has experimented with alternative forms of donations, including QR codes and kettles that accept credit cards, Major Busroe said, but they raised little money. Text-to-give donations are more successful, he said, but they tended to be driven by special events like a concert to raise money after a disaster. Another drawback is a $10 limit on donations.

Major Busroe said the Salvation Army has also created an online red kettle program, which brought in $2.4 million last year, an increase of 14 percent, but just a fraction of the Salvation Army’s overall fund-raising. He sees a possible success in a bell-ringer app created last year by a community bank. The Salvation Army is looking at ways to expand it nationally. But technology has not produced a way to replicate the simple experience of dropping cash into a kettle.

“You put your money in and you get instant gratification,” he said. “That’s the way it’s been for 125 years.”