Cash - Who Needs It?
The Age
Monday March 13, 1995
As cards get smarter, cash gets scarcer, but we should find it easier to spend, save and update the accounts.
PEOPLE who shudder at the thought of telephone banking, get nervous depositing cash into an automatic teller machine or who view EFTPOS with suspiscion, will have to get ready for culture shock: the cashless society is closer than you think.
This year Visa will introduce, through its member banks, the first smart card (a card with a computer chip in it) that will have significantly more functions than your current card with its magnetic stripe.
The smart cards, estimated to cost around 50 cents each to put into the hands of customers, are the start of the brave new world where cash becomes increasingly irrelevant, where you can more closely monitor your spending habits on a daily basis, and where you can effectively limit your spending as an empty wallet does.
Late last year, Visa International, MasterCard International and Europay completed the final stage of a three-part global specification program to introduce the so-called integrated circuit card. The pilot program for Visa's ``Relationship" card will begin this year, partly in Australia.
According to Hilton Sack, Visa's executive vice-president Australasia, the introduction of new technology in all forms poses significant challenges for banks and customers.
He says that with home computer links to the Internet, Compuserve and eventually Microsoft's Windows 95 giving people access to home shopping through so-called electronic malls, it might be those who control access to the information superhighway who are the major influences on banking in the future.
Visa has already announced links with Microsoft to provide a standard method for executing banking transactions across global and private networks. The card companies believe they have an edge in this area because they already have the security clearance systems set up around the world to allow smooth banking through electronic facilities.
According to a US-based senior vice-president of advanced technology at Microsoft, Nathan Myhrbold: ``Right now, we're all street people on the information highway; we can't protect our privacy and information; we can't prove who we are; we can't buy anything."
Myhrbold says the technology being created will allow people to use their current cards (but more likely smart cards) to buy a host of goods and services across multiple applications.
Australians have already embraced banking technology; our automatic teller machine and EFTPOS use are among the highest in the world on a per capita basis. But are we really ready to move to the next step and do away with cash altogether?
According to the Reserve Bank's January bulletin, there was, at the end of last year, $18.87 billion of notes sloshing around our economy.
This translates to more than $1000 each. If you are looking for your spare thousand, consider that the cash reserves held in shops and banks will account for a good deal of your share.
The Reserve Bank's bulletin also notes that, at the end of November last year, Australians had total limits outstanding (this includes used and unused credit limits) on their credit cards of $18.53 billion almost the same amount as cash in the community. Of this, $5.33 billion were advances (either cash advances or purchases) that were due to be repaid to the banks.
One of the reasons credit card use is on the rise is the ease with which we can now pay bills using cards. And provided we have the right card, we can avoid many of the transaction charges that the banks levy on cheques. We also overcome state and Federal Governments' duties by using credit card facilities.
Naturally, if you are using a card in such a way, it is best to have one that gives you interest-free days (the standard is 25). Be aware that if you err and go beyond this, your credit card interest costs will be significantly higher than cards with no interest free days.
If you combine your credit card bill-payment facilities with phone banking (or an ATM) to make transfers between accounts, and you do your shopping by EFTPOS, you have very nearly entered the cashless society.
If you find it hard to imagine life without cash (what if you want to buy a paper?) then the smart card might well be the answer . . . in time.
``These cards can carry a prepaid component, allowing users to call from a public phone, catch a bus, buy takeaway food or hire a video, all without having to handle small change. Pockets full of clanking coins will become a thing of the past.
``The prepaid (or stored value) component can also store foreign currency for international travellers, along with a currency converter," says Hilton Sack.
The limit to this dream is the need for newspaper vendors, video stores and others to have swipe facilities to debit the cash component of your smart card. But even that does not seem so far fetched.
If you have run out of your daily allotted cash amount on your card (it seems perfect for people on a tight budget), you can choose to hook it into your computer to top the cash limit back up, or to do this via the phone.
At night, when you come home, you will swipe the card on your computer and the information of all cash and credit card purchases made during the day will automatically be downloaded into the computer, and your budget will automatically be updated.
Now start to use your imagination to see where this might lead.
For example, Hilton Sack already sees the demise of automatic teller machines.
``You may pay for your favorite goods from the comfort of your favorite armchair, you may load value on to the stored value component of a chip card through your PC, saving the effort of going to an ATM machine," he says.
In other words, the smart card might give you what phone banking and home computer banking currently can't: access to so-called cash.
A part of the enormous advances that the smart cards will make comes from the fact that they can store several pages of information while the magnetic strip on your current card remembers just a couple of lines.
One of the other suggested advantages is that the chip card should help prevent credit card fraud, which is still one of the major areas of complaints to banks, according to recent reports from the banking ombudsman.
Because of the extra memory of the smart cards, extra authentication data can be stored. There might, for example, be a limit on off-line transactions (which do not need card authentication because they are below shop-floor limits), which means that every fourth or fifth transaction must be verified, regardless of size.
Also, the personal identification number (PIN) will be encoded into the chip; this means that the PIN stored in the card cannot be deciphered unless the card is destroyed, rendering it useless.
For some, the security of cash will always be an important thing.
But for convenience, in the next five years most of us will move to the new cards and give ourselves greater control of spending and budgeting.
© 1995 The Age
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