Money for nothing: will the future be entirely cash-free?
Do m-commerce, debit cards and social banking spell the end for cash? Robert Jeffery investigates. Meanwhile, three leading designers share their visions of the future
Cash has had its day. Ten years from now, half of Europeans believe, we will be spending so much through electronic payments, cards and m-commerce (transactions using mobile phones) there will be no notes or coins left to handle.
Block with a chip coin by Conka Design
It’s easy to underestimate just how profound a shock that will be, given the long and colourful history of money. The first notes started circulating in China around 600AD. The English pound dates back to the eighth century and probably owes its name to the practice of measuring large payments by weight, 240 silver coins weighing one pound.
Although you could exchange coins at a goldsmith for a promissory note, money did not really take off in the UK until the Bank of England was incorporated in 1694. In the 1770s, an argument over whether Britain’s North American colonies could print their own banknotes (British mandarins believed the reckless Americans would print too much money, triggering hyperinflation) was one of the hidden drivers behind the War of Independence.
Until the 1880s, when the Bank pre-printed notes, cashiers signed each banknote personally. Even then, it took a while to get used to cash. In Puckoon, Spike Milligan’s comic novel set in 1920s Northern Ireland, a landlord won’t accept a green pound because he thinks it is a cheque: to him, brown – the colour of the old 10-shilling note – is the colour of money.
The rise of plastic and bank transfers has begun to erode our love affair with notes and coins: “Some people already go the whole day without handling cash, thanks to credit cards and swipe cards. It may eventually become a ‘dirty’ commodity people just don’t want to touch as it becomes rarer,” says Adrian Furnham, professor of psychology at University College London and author of The Psychology of Money.
Our attitude to the allegedly grubby £5 note is already changing. Fivers pass through many hands quickly, have vanished from ATMs and, on average, are now in circulation for only nine months.
The amount of cash in circulation has never changed dramatically – instead, it’s the make-up of our assets that best demonstrates our shifting attitudes to currency. Just after World War II, the amount of bank credit (the money held in bank accounts and available to be converted into physical currency if required) was roughly equivalent to the cash in circulation. Today, it is 160 times greater than the value of the notes and coins in our pockets and accounts for 97% of all money supply.
When the Bank of England talks about printing money to revive our economy, the presses don’t literally roll: the liquidity available to banks just increases. This explains why the idea of a genuine run on the banks terrifies treasuries. We live in an economy built on credit.
Our dependence on credit may grow as it becomes easier for us to use plastic and mobile phones to buy stuff. Chip and PIN is still relatively slow, but Barclays is the first bank to introduce ‘contactless cards’ where up to £10 can be spent without any verification. By 2011, five million such cards will be in circulation.
There is an economic rationale behind phasing out cash: counting out notes or coins makes us think more about what we are spending. No matter how familiar we are with electronic payments, there is something less immediate and tangible about debiting an account electronically.
Psychologists call this ‘payment coupling’ – the association between deciding to spend and the actual spending. Priya Raghubir and Joydeep Srivastava, who wrote the definitive study on the subject, liken any form of physical payment that isn’t legal tender (including credit cards and gift vouchers) to “Monopoly money.”
We enjoy buying something less when we think about it, so we are more likely to use our credit cards to make frivolous purchases. And because credit card bills group purchases together, the individual spending decisions we make seem less significant. For similar reasons, we spend more on holiday if the foreign currency we are using is worth less than our own. The banks’ quiet phasing-out of monthly statements may increase the effect and encourage us to treat real money like Monopoly money.
The less well-off are trapped in a cash economy. Mobiles can empower them. If you’re on benefits, £2.50 to use an ATM is a lot Dave Birch, Consult Hyperion
We have the technology to do away with cash but the credit crunch suggests it may, for a while, be a case of ‘cash is dead, long live cash’. Psychologically, we aren’t ready to dispense with notes and coins. “Money is imbued with emotions,” says Furnham. “For some that’s love, for others power, ambition or freedom.” When pop group The KLF were filmed burning £1m on a remote island in 1994, it provoked outrage. Such a reaction would have been unlikely had they wiped a few zeroes off their bank balance.
One in 10 Britons believes that ‘under the mattress’ is the safest place to keep their assets – and 28 million Americans, appalled by the carnage in the financial sector, are storing their money there, despite being urged not to by the government. In China, consumers who embraced newfound lines of credit are turning back to cash.
Our attachment to cash runs so deep that many organisations have chosen to print their own.There are more than 330 micro-currencies in the UK; Lewes and Totnes are the latest towns to launch ‘pounds’ to encourage local spending. The flaws in such schemes are fairly obvious – if suppliers won’t accept the currency, businesses won’t either, and the whole trend contradicts the globalisation of the economy. But in Europe, it is serious business.
Regional currencies are widespread in Germany. In a bid to stimulate economies, some notes have ‘spend by’ dates so that, if unused, they must be renewed for a 2% levy. Islamic finance, which could gain a foothold in the UK banking system, works along not dissimilar lines – it doesn’t offer interest, so there is no incentive to keep hold of cash.
“Gentlemen, we have no money, therefore we must think.” That’s what physicist Ernest Rutherford told the cash-strapped British Admiralty in World War I as he tried to improve submarine detection without troubling the Treasury. With money tight, fewer credit cards being issued – and little faith in the banks – many of us are, like Rutherford, thinking outside the box. The American Internal Revenue Service has even had to clarify the tax rules on bartering to claw back revenue from those who don’t spend currency.
The trouble is, if consumers are to spend their way out of recession, the economy needs to rely less on cash. Faced with a daily diet of redundancies and recession, we are cautious about impulse buys. As access to credit becomes harder, we use more cash and are more likely to spend on necessities than luxuries. The desire to remain outside the tax system keeps cash alive among some sole traders.
There are many situations where we could use less cash if we chose to but high fees to merchants and consumers deter many of us. Last November, Downing Street said it was alarmed by sudden and sharp increases in credit card rates and fees as the card companies try to compensate for the risk that many of their cardholders won’t pay their debts.
K-Mart, one of America’s biggest retailers, has revived the ‘layaway plan’, where goods are put to one side and paid for over a few months (if the buyer can’t save enough to complete the purchase they get their money back, minus a service fee). Popular in the 1930s, the ‘layaway’ is perfect for newly constrained consumers who want to make bigger purchases.
Cash remains king now, but how long will it be before it is dethroned? Once the credit crunch starts to ease, and economies recover, the lure of m-commerce, time banks (paying for services with services), digital micro-currencies and peer-to-peer ‘social banking’ suggests it can’t be long before the jangle of coins is silenced forever.
Some people already go the whole day without handling cash. It may become a "dirty" commodity people don’t want to touch Prof Adrian Furnham, UCL
With the banking industry’s reputation shredded, social banking has gained some momentum. Zopa, a peer-to-peer system that lets people loan directly to each other, is popular (and the Chancellor might like to note has only a 0.2% bad-debt ratio) using a similar model to the American system Prosper, which has lent £124bn outside the conventional banking system.
Dave Birch, director of Consult Hyperion, an IT consultancy specialising in digital money, thinks cash will disappear “when we finally understand what the mobile phone was invented for.” In Japan and South Korea, small transactions are routinely made through m-commerce as phones sync with vending machines, ticket booths and newspaper kiosks. The Japanese m-commerce market is worth more than £5bn, and 80% of e-commerce among 15-to-24-year-olds now takes place by phone.
Sophisticated m-commerce solutions mean users can receive cash from others, and choose to pay in any currency. But security concerns could delay Birch’s forecast that most under-21s in the UK will be using such systems within five years.
The Design Council has launched a Technology Strategy Board and Home Office-backed challenge to devise the most effective systems for verifying identity and ensuring security of m-commerce transactions, an issue mobile phone companies and payment providers haven’t yet fully grasped (visit www.designcouncil.org.uk/crime for details).
And, of course, with m-commerce the payment coupling effect means we’ll all spend more. “Part of the business case for m-commerce is that there will be an uplift for merchants,” says Birch. He does add, though, that phones’ interactivity will enable us to see how much money we have at the point of spending it.
In Kenya, another early adopter, person-to-person m-commerce means small businesses can transact without bank accounts, and consumers can transfer cash across the country without running the risk of having to carry it in person. In December, the British government announced plans to persuade poorer countries to remove barriers to m-commerce, claiming it could save £9bn in bank charges and other costs.
Birch believes the same benefits could be felt closer to home: “People who are comfortably off don’t use much cash. But the less well-off are trapped in a cash economy. If you’re on benefits, a £2.50 charge to use an ATM is a lot. Mobile phones could be very empowering in that sense. In the average EU country, the social cost of payments [the cost of processing and allowing access to cash] amounts to 0.5% of GDP. If you have no cash, you have none of that.”
He points to successful trials involving Visa and Barclays among British users (who “didn’t feel it was science fiction…they thought this was what phones were meant for all along”) and the ease and rapidity with which the Oyster card has replaced cash on London’s transport network.
Orange chief executive Tom Alexander says: “Today you pay for things by cash or on your credit card. Tomorrow, you’ll use your mobile to buy the things you want, whether that’s on the high street or the internet.”
The credit crunch has granted cash a stay of execution but has also handed us an opportunity to build an infrastructure (embracing retailers, financial institutions and individuals) for a more technologically advanced future. Only the psychological allure of the folding stuff – or another recession – can hold us back. And cash has already suffered one symbolically important death. In 2006, the makers of Monopoly issued a new edition of the game that replaced notes with a Visa-style credit card.
Tomorrow's money
DCM asked three British design agencies to redesign cash. Here is how they responded:
The block with a chip
Conka Design
www.conkadesign.co.uk
"This concept makes use of the most modern advances in materials and technology," says Mark Hodge, creative director.
"Manufactured from recyclable and biodegradable bio-plastics, it features a small internal microchip over-moulded within the plastic, ensuring counterfeiting is an impossibility."
"It is based more on credit and less on the coin-and-paper system. The chips within each unit store information about the value of the coin or card, so it can be used within vending machines, or accurately tracked within a shopping environment."
Clik and anti-bacterial coins
Fripp Design
www.frippdesign.co.uk
Clik by Fripp Design
"Clik is fresh and modern. Embedded with RFID [trackable, identifable radio frequency tagging], it is impossible to copy and the bumps can be easily read by the blind by simply counting the rows and columns to work out the denomination," says design director Neil Frewer.
Anti-bacterial coins by Fripp Design
"Coins are bacteria-ridden, so our second concept has no dirt traps or crevices that could harbour diseases. The anti-bacterial-coated PET shell will take knocks over time with ease, and the glass-like finish ensures its looks won’t fade. Suspended inside the shell are a range of materials, each representing a different amount, from plastics for pence to metals in the pounds".
Earthworth
Dragon Rouge
www.dragonrouge.co.uk
"Society is going through a reality check after an era of mass consumerism," says creative director Chris Barber. "This is a wonderful opportunity to create a sustainable currency.
Earthworth bank notes by Dragon Rouge
Earthworth uses tree-free agricultural by-products and 100% unbleached post consumer content. And at the end of their life, the notes can be composted or digested in a bioreactor to create biofuel. Counterfeiting measures are included on the holographic information bar, including RFID-encoded ink."
"It would act as a daily reminder to consume more respectfully, and think about the life of product, both before and after use."
Chasing the money
Designing a banknote is a prestigious but increasingly rare commission. The last major overhaul of the fundamental British design was more than a decade ago, in response to the growing sophistication of counterfeiters.
Note design has since been outsourced to De La Rue, an Essex-based commercial security printer and manufacturer of cash-sorting equipment.Note design is a balancing act between security requirements, austerity and disability legislation (the US government, which made all its notes the same size and colour, had to add colour after a legal challenge from pressure groups for the partially sighted).
If De La Rue does ever rethink English notes, the basics are unlikely to change. The Bank of England rejected radical options in its last commission. The tradition of depicting famous historical figures will probably endure:the Bank’s research shows that people noticed small inaccuracies in faces more readily than objects.
The design team needs an intricate understanding of the complex printing processes and must deliver value for, well, money – notes should cost no more than 3.5p to produce.
Varying coin design is easier, and security is less of an issue, but retailers and banks are reluctant to handle coins. They’re fiddly, hard to count and get lost too easily. Reducing the size of a coin has a proportional effect on value: studies of the latest five-pence piece found it was less likely to be picked up off the floor than the old version.
Loose change
The world of currency in 10 paragraphs
Serious money
The highest denomination in circulation is Zimbabwe’s $100 trillion. In February, $1 trillion was revalued as $1, but the old notes remain valid.
Fair copper
Soaring metal prices mean that pre-1992 2p coins each contain 3p worth of copper.
Nine’s a bargain
A 1997 study found that 60% of prices in advertising material ended in the digit 9 and 30% ended in the digit 5.
Beenz means disaster
The most notable of many attempts to introduce a ‘web currency’,was the Beenz scheme launched by Charles Cohen in the 1990s. Deemed illegal in many countries, Beenz blew £100m in venture capital before it imploded in 2001.
Mackerel economics
Since 2003, when cigarettes were phased out, inmates of Californian prisons have been trading in ‘macks’ – cans of mackerel. In 1920s Siberia, people could exchange furs for money credits while, in the early days of the Roman Loose change empire, payments were often made in olive oil.
Designs on himself
Dutchman Robert Oxenaar, regarded as the world’s foremost money designer, included his own fingerprints and friends’ names in his Guilders, which he designed until 2002.
Healing power
Research suggests we like holding cash so much it could act as a pain reliever. Recent studies show that people feel less pain after being scalded by hot water when given money to hold. Monetary museIn 1903, Brazili’s finance chief Joaquim Murtinho, made an image of his mistress the face on the new 2,000-real note.
SpendalongaMax
The UK government promoted Decimal Day (15 February 1971) by asking Max Bygraves to record a song called ‘Decimalisation’.
Dollar bull
In 1999, Canadian economist Herbert Grubel suggested Canada, Mexico and the US adopt a common currency – the amero – but the idea never caught on.
Article first published in Design Council Magazine, Issue 6, Summer 2009