Is It Time To Say Goodbye to Paper Money? Walaika K. Haskins, newsfactor.com
Mon Jan 30, 5:55 PM ET
Since the late 1990s, when the expansion and adoption of the Internet created a bona fide Mecca for retailers and shoppers, people have looked forward to the day when physical cash would no longer be the mainstay of payment transactions.
When the Internet boom came to a screeching halt in 2000, some experts believed that it also marked the end of efforts to establish digital currencies.
But the continuing success of the online payment service PayPal, as well as the recent adoption of so-called e-cash by 15 million people in Japan, has bought the electronic-money movement new momentum.
Money from Nothing
The push for electronic money became an integral part of the digital revolution during the mid to late '90s. It was based on the premise that consumers would balk when asked to submit their credit-card numbers when making a purchase.
Giving online customers a way to convert physical cash into digital coin seemed like the solution. This "e-money" would be stored offline on cards embedded with a chip -- smart cards -- or within a computer's hard drive, and it could be used to make any kind of purchase.
A bevy of private digital currency start-ups hit the Web. But these currencies amounted to little more than digital Green Stamps. Designed for use online only, the currencies that were created by companies such as Beenz.com, Flooz.com, Goldmoney.com, and others were not connected to any government or central bank.
While some promoters and consumers found the lack of government involvement a plus, most shoppers and merchants were hesitant to jump in to these online money schemes. Many companies folded as the dot-com boom began its downturn in 2000.
Konichiwa, E-Money
Today, however, for 15 million Japanese, paper money is a thing of the past, according to the Japan Research Institute. No longer solely used for online purchases, e-money, accessed via a smart card or mobile phone, has become a way of life for many consumers in Japan.
The e-money trend began there roughly four years ago as a service for busy, on-the-go train commuters. Today, specially equipped mobile phones and smart cards are used to purchase items from convenience stores, department stores, restaurants, newsstands, supermarkets, and other retailers. The Japan Research Institute estimated that by 2008 some 40 million Japanese, roughly one-third of the country, will be using electronic money.
Technologies such as FeliCa, from Sony, use integrated chips that enable devices to receive and emit electronic signals. These "contactless" or near-field communication (NFC) devices include mobile phones, transit cards, and prepaid e-money cards.
Japanese Economic Monthly reported last year that NTT DoCoMo, the country's leading mobile-communications company, had sold some 3.34 million handsets equipped with the FeliCa technology through April 2005. In 2005, the number of digital-money transactions more than doubled, averaging around 15.8 million each month, according to statistics from the two largest electronic-money providers in Japan. Some Japanese supermarkets have reported that up to 40 percent of all purchases now are made with e-cash.
Other countries, notably Hong Kong and Canada, also have implemented electronic-cash systems that have seen some adoption. But if you are waiting for similar technology to become the norm in the United States, you might want to hang on to those greenbacks.
Coming to America
Joe Levine, a senior analyst at Yankee Group, is skeptical that U.S. paper money or coins will fall by the wayside anytime soon. Creating a cashless society in the U.S. with either mobile phones or smart cards would require enormous effort by players in several industries, he said, including credit-card companies, mobile-phone service providers, manufacturers, and retailers.
Japan is so far along because companies like DoCoMo are the heavy hitters in their industries, Levine said, and have made significant investments to develop e-cash technologies. DoCoMo, for instance, invested some $900 million to acquire a 34 percent stake in Sumitomo Mitsui Cards, Japan's second-largest credit-card company.
After that deal, announced last April, the credit provider started developing point-of-sale terminals and ATMs for use with DoCoMo's mobile-wallet handsets. Levine said he has not seen anything like that type of commitment in the U.S., as American service providers do not seem as focused on e-money as an opportunity.
"We're more fragmented here [than in Japan], with a larger number of tier one [mobile companies] and a portion of the country that is served by tier-twos," Levine said. "There isn't the same sort of dominant player [like DoCoMo]. There isn't a single wireless company that if they got behind a standard, it would become the standard. And that's a significant difference, that we have a larger, less-consolidated market."
Charles Goldfinger, a consultant who has advised the European Commission on e-finance and smart-card-based financial applications, agreed that DoCoMo's relative dominance in its industry and its base of some 50 million subscribers helped digital money become successful in Japan.
"In the U.S., the telcom situation is very different," Goldfinger said. "The fact that the U.S. has several major mobile services providers as well as several leading financial institutions will hinder the effort to achieve a digital-money standard."
Adapting Dinosaurs
Some technology prognosticators, including Microsoft Chairman Bill Gates in 1994, have gone so far as to say that banks are "dinosaurs." When cash disappears, the argument goes, banks become extinct.
But banks as well as credit-card companies are already involved in developing contactless cards and other electronic-cash technologies. In Japan, for instance, said Goldfinger, the Central Bank in Japan was pushing for e-money, in particular through DoCoMo.
"Banks," said Goldfinger, "are adaptive dinosaurs and anyone who writes them off is crazy. I say that because they will still continue to run the payment business and ultimately [digital money] is a payment business."
I would rather not follow him. 