The nontrackable cashless future isn't here yet -- but it's just within reach

The problems of reliability, ubiquity, and privacy all intersect

As debit, pre-charged, and credit card transactions become more and more ubiquitous, it's worth exploring the question: what would a cashless society technologically look like?

A headline from this spring, "Sweden moving towards cashless economy," highlighted various stories coming out of the Nordic nation's seemingly inevitable push to drop cash from financial transactions. Already, Sweden's cash only accounts for three percent of existing transactions, while the average in the U.S. is seven percent.

But in every story about Sweden's shift to a cashless economy (a story that seems to have made the rounds for a couple of years at least), the theme has been that Sweden's population and businesses are adopting technologies and infrastructures that already exist, not coming up with new ones.

debit_card_600x450.jpgSource: Tony Webster/Flickr
Most people already have debit cards, though not necessarily with lolcats on them.

That existing tech is something with which we're all mostly familiar: the debit and credit cards that make it easy to buy things with a tap or swipe. But there is still a major societal issue when one uses these tools: because they all rely on some form of centralized authorization, ultimately the transactions you make will be tracked by that centralized authority. Even cutting-edge payment systems, like the iPhone app that lets you go into the Apple store and buy something in a pretty white box without dealing with a person in a blue t-shirt, relies on a payment source account somewhere.

This is big problem with current cashless systems. Privacy advocates are vehemently opposed to this kind of tracking, and consumer advocates also point out the added costs and fees that consumers or merchants have to contend with when using credit/debit payment systems.

Not coincidentally, this is also probably a big reason why there's been an increasing amount of discussion about cashless economics of late: banks would definitely not mind more users within such a system. But it's not the only reason; consumers themselves are becoming more willing to trade off their privacy for the sake of convenience.

And merchants may not mind, either. Yes, they may have to incur more fees with centralized cashless systems (debit swipe fees alone were estimated at $16.2 billion in 2009), but a 2004 joint study from AEI and the Brookings Institute estimates that a nation would save about one percent of GDP shifting from cash to cashless. In the U.S., that would be in the neighborhood of $146 billion a year, based on the 2010 GDP.

The savings would be realized in costs required to handle currency: physically transporting it around alone costs a lot for merchants, once you take into account staffing costs and insurance fees for moving cash. Without cash, stores could shift to self-service checkout lanes, thus reducing personnel costs.

We typically don't see these costs as consumers, because for us, they are unseen: crime, resources to transport, and opportunities to cheat the system with cash. But the costs add way up. Cash, it seems, is more expensive than cashless.

But that's of little comfort to the millions of unbanked Americans who rely on cash on a daily basis, nor to the millions who are very unwilling to give up their privacy just for the sake of saving a bank or a merchant some trouble. So how could a cashless system work that would satisfy the privacy needs of consumers and still be secure enough to use ubiquitously?

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