Looking Forward to 2012: The Continued Demise of Cash

How mobile payments, NFC and person-to-person apps will change the way that people pay each other in the coming year.

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Okay, so cash isn’t going to disappear anytime soon, but 2012 looks to be a pivotal year in the transition towards a world where we have options besides just cash and credit.

What’s wrong with the way things are? Let’s start with cash. It’s dirty, it costs a lot to withdraw from the ATM, nobody will reimburse you if it’s stolen, not to mention that walking around with a bulging wallet seems strangely anachronistic in a world where super-slim smartphones do everything from recording video to telling you where your friends are eating dinner.

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Credit cards might be convenient for consumers but they aren’t always great for businesses. That’s because each time you swipe your Visa or Mastercard, the merchant has to pay an interchange fee ranging between 1% to 2% of every transaction. That’s no big deal for large retailers such as Best Buy and Target, but it can cut into the already slim profit margins of small businesses.

Even if you are willing to fork over a percentage of each sale, the rise of tiny DIY businesses — from Etsy shops to foodies selling homemade pickles at farmer’s markets — demands that bulky credit card readers and old-school shopping cart applications become things of the past.

So, what’s going to happen in 2012?

As Google Wallet becomes more common, expect people to lose their fear of paying for products via smartphones. The biggest obstacle here isn’t technology, it’s competing financial interests, as carriers and banks fight for their cuts while merchants, as usual, feel the pinch. It would be nice to see the product extended to more banks and credit unions instead of just a handful of financial institutions, but hey, you have to start somewhere.

If anything, it’s companies’ eagerness for a piece of of the mobile payments pie that’s keeping NFC (near field communication) technology from really taking off, as evidenced by Google and Verizon’s spat over putting Google Wallet on the new Galaxy Nexus. Yes, it’s a painful delay, but it also legitimizes the entire market — giant corporations don’t fight tooth and nail over something that they don’t think is going to be profitable.

Even more encouraging is the rise of products like Square and Intuit, which lets merchants run credit cards through their smartphones. The old 9-to-5 employment model where you get a gold watch after 40 years is dead. More people than ever are working as independent contractors, which means more people need easy ways to get paid.

Take this example: I was at a party where I met a guy wearing a witty, meat-themed T-shirt, which I expressed interest in purchasing. It just so happened he had a bag full of them — I just needed to go to an ATM to get cash. Needless to say, I opted to stay at the party rather than search the streets for an ATM, meaning he lost a sale.

In the future, this won’t be a problem. Every person who makes artisanal jams or funky clothing in their basement will have a way to accept payments no matter where they are or how big their operation is.

Another area where we can expect to see big changes? Person-to-person payments. This year saw a huge jump in products that let you transfer money from one bank account to another.

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After using Chase’s QuickPay to pay rent, the idea of writing and ripping out a check seems woefully outdated. Other banks are also jumping on the person-to-person payment trend, meaning by the end of 2012 you may never have to write a check again.

In 2011, PayPal broke out several intriguing new products, including a Facebook payment app and NFC Android-to-Android payments, all of which don’t bode well for the future of cash and checks. In certain tech-savvy social circles, I’m sure there are people who barely even touch a credit card, let alone cash.

Don’t get me wrong — I’ve read the reports about the slow adoption of mobile payments in 2012. But we have to remember what we’re comparing the current progress to.

Five years ago, you needed cash to pay a New York City cab driver, lest you get an earful of angry epithets. Today, you can simply pass your iPhone near the MasterCard PayPass terminal installed in every cab and your fare is paid. No, it’s not the universal standard, but it’s still pretty impressive.

Google Wallet, Square-equipped smartphones and person-to-person payment apps aren’t as ubiquitous as analysts would like, but that doesn’t mean we aren’t on our way to a future where all of our transactions are done through computers and smartphones. The more accessible these technologies become to smaller banks and merchants, the closer we’ll be to a more convenient, cash-free world.

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