Human attachment to cash, be it stones, shells, coins or paper is inexorably linked to our desire to get something palpable in return for goods or services rendered. But cash has one huge drawback – cost. Cash doesn’t last long, a year at best for most bills, and is extremely expensive to produce, document and transport. The goal for most financial institutions is to move all monetary transfers to the electronic world where money would never have a material existence.
To a great extent this is the case in Canada today. Interac transfers money from our bank account to a store’s account, the former having been (often) deposited directly from our employer’s bank account into ours.
But this is about as far as it has gone. Quick, get out your wallet. Got any cash? Why? For many daily purchases, be it a coffee, or the morning paper, cash is the only solution.
Public transit is often paid for with tokens, just another form of cash. The Internet, with credit card use, has helped us move toward a cash-less society, but only an infinitesimal percentage of our purchases are made online. And many of those bills are still paid using cheques.
At a recent RBC Financial Group eBusiness Intelligence Symposium in Toronto, a series of speakers addressed the problem of breaking our affinity with cold hard cash and its paper facsimiles.
Sanjay Bhargava, a PayPal guru and serious fan of e-money, admitted that it will be years before cash is dead. He cited the simple fact US$60 billion worth of cheques are written each year and that it will be no easy task to wean people from just this one payment method “The payment industry is quite archaic,” said the founder of San Carlos, Calif.-based Transfinium, a financial services company.
Statistics back up his reasoning. Though Canadians are among the most connected in the world, only 52 per cent of us pay some bills online, according to Forrester Research. In the U.S. it is an abysmal 10 per cent. Forty per cent of Canadians do not bank online. In the U.S. it is 65 per cent.
Getting Canadians to receive their bills online is another big hurdle. The vast majority, 91 per cent, still receive them in the mail, Forrester Research found. There is an undeniable love affair with paper. Creating one Web site for bills, a customer request, is being met with corporate resistance. “Some billers want consumers to come directly to them” to up sell and cross sell, said Cathy Graeber, San Francisco-based senior analyst, financial services with Forrester Research. A consolidated solution is desperately needed. Having epost, webdoxs (formerly e-route Inc.) and other billers competing is not going to work, Graeber said. In any case, surveys show users want to get their bills via e-mail, a solution few companies are offering.
smart card SLUGGISH
Banking online aside, the use of card-based payment is not seeing much growth, in part due to limitations. Many people have a debit card, as well as a few credit cards in their wallets. The smart card was to lessen this abundance with an embedded chip storing all pertinent information. But that never happened.
Aaron McPherson, a research manager with Framingham, Mass.-based IDC, said smart card solutions have been a big disappointment since there is no perceived value to it.
“Next year will be the year of the smart card,” he said, repeating an often cited joke.
Any new technology is always going to be a tough sell, he said, but the smart card, long touted as a panacea, has some potentially insurmountable obstacles to get around.
Several groups have to change their technology. The merchant has to buy a new reader, the issuer has to make new cards which the user now has to carry. And those that provide merchants with their systems also have to change. If cards could wirelessly transmit to magnetic readers (which are already in most Canadian stores) then one of the hurdles would be removed and the likelihood of success would dramatically increase, McPherson said.
Otherwise it is classic chicken and egg. Merchants won’t adopt if the customers aren’t and customers aren’t going to use them if there are not enough merchants.
“The problem with smart cards is that there is always a cheaper alternative,” McPherson said.
One place digital cash in smart card form does work with Hong Kong’s public transit system, McPherson said. There, contactless smart cards (an antenna at the turnstile powers the smart card) allow commuters to travel to work with the simple wave of a card. There are daily transactions worth US$9.67 million done on these cards, he said.