Monday, January 04, 2010

Will electronic money replace cash...ever?

A recent discussion on one of the LinkedIn discussion groups initiated by Meneke made some fascinating points on the possibility of cash ever getting replaced by mobile money (Read here). I was a bit late in contributing to the discussion and when I wanted to, all has been said. yet, the discussion made me think about the topic. This discussion was followed up with a panel discussion where more thoughts were shared. The proceedings of this discussion is documented here. One should also read what Dave Birch has to say on the topic (Read here). The points that he makes and the way that he does it is always entertaining. One should also read the many other articles and opinions published on the Internet on this topic (For instance here).

The most important consideration for this discussion is to realise that less than 5% of actual money supply is actually represented by physical cash. A very small percentage of money is utilised for retail payment transactions. Whereas the demise of cash will mean a significant change in the total value of money, it would have a small impact on electronic money. The majority of the world's money is electronic anyhow (already). Electronic money is used for big item transactions (investment, funding transactions, foreign currency etc.) as well as retail transactions (cards and mobile payments). A move to totally replace physical cash will be a very small move (say an increase in 2 to 3%). I believe that this is quite possible and can happen swiftly.

Much of the discussions on the LinkedIn group was on ways to make this happen (user confidence, ease of use, acceptance, fraud etc.). If we figure out how to offer consumers an electronic way to pay while considering these imperatives, electronic payments would start to dominate cash easily. Mobile payments (if implemented correctly), is the only way to address the valid constraints. Mobile payments will ultimately lead to the elimination of cash.

1 comment:

veer said...

As I know about it this is future trend . Although electronic money can provide many benefits—such as convenience and privacy, increased efficiency of transactions, lower transaction fees, and new business opportunities with the expansion of economic activities on the Internet—there are many potential issues with the use of e-money. The transfer of digital currencies raises local issues such as how to levy taxes or the possible ease of money laundering. There are also potential macro-economic effects such as exchange rate instabilities and shortage of money supplies (total amount of electronic money versus the total amount of real money available, basically the possibility that digital cash could exceed the real cash available). make money in minutes