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When Will Cash Die?

Will cash withstand the onslaught of innovation or will it soon disappear and become a relic of the past?

Tinkoff

Материял доступен на русском языке 

Back in 2019, cash transactions accounted for only 10% of all money transactions in Iceland. Cashless payment methods are increasingly taking over the world in unusual ways. Today, consumers can pay not only with their phones, but also with chips inserted under the skin, and with their eyes — using biometrics. The Moscow Times, with the support of Tinkoff Bank, is asking the question: will cash withstand the onslaught of innovation or will it soon disappear and become a relic of the past?

Beginning of the End

A hundred years ago, in the early 1920s, the California-based General Petroleum Corporation, which owned a network of gas stations throughout the country, began issuing preferential cards, which became the prototype of bank cards. These cards made it possible to get a discount on gasoline and related products, and even to pay for them. General Petroleum's innovation was soon copied by other gas station networks, and then by large store chains.

The first cards were made from cardboard, and quickly disintegrated. This did not appeal to the businesses issuing the cards or their customers. Once there was demand for more durable cards, the market had to respond with supplies. In 1928, Boston-based Farrington Manufacturing, which specialized in the manufacture of engraved metal boxes and cases, released the prototype of the  Charga Plate metal card, which quickly became common in retail chains.

Now, almost all bank cards and their issuers are squeezed out or embossed. This is a tribute to the past: The buyer handed over the card to the seller, who used a special press — an imprinter — to make an imprint of the buyer's card on the receipt. The card’s imprint confirmed the purchase of the goods by the cardholder. Embossing, according to the advertisements, simplified and accelerated the interaction between the buyer and the seller, as it eliminated the need for the seller to manually fill out the sales receipt and enter the buyer's details into it.

The new way of paying for goods and services emerged in 1949 when businessman Frank McNamara ate his lunch in a New York restaurant and realized that he had forgotten his wallet. McNamara gave a receipt saying he would come back and pay, and left, thinking about how he could get out of such a sticky situation. This dinner is known as the "first dinner", because as a result of it, Frank came up with the idea of ​​creating a credit card.

A year later, McNamara, together with his colleague Ralph Snyder, created the first credit card company - Diner's Club. The company issued membership cards with which customers could delay paying for lunch at 27 partner restaurants of the club.

Eight years later, Bank of America issued BankAmericard, which later became known around the world as Visa. It was a paper card with a $300 limit that worked throughout the country. In 1967, four Californian banks founded Visa's competitor, MasterCharge which morphed into MasterCard 12 years later. 

A revolution in the usability of bank cards was championed by an IBM engineer who figured out how to translate the processing of card transactions into computers, thereby reducing the number of actions when paying the client and the charger. In 1970, a magnetic strip was added to payment cards using the IBM 360 system. The strip contained the information needed to confirm the payment: the cardholder's name, card number, authorization code, and card expiration date. The first electronic payment terminals were created to read these magnetic strip cards.

Where are we now

Cashless payments gained massive popularity in the 1990s, when electronic banking became commonplace in developed countries and gradually penetrated into developing countries. By the 2010s, digital payment methods had spread across the globe. Now customers can pay not only with a physical card, but also with a digital one using a smartphone or smart watch. Cash has become useless, and some think it should be abolished altogether.

The greater efficiency of digital money and use of cash in the criminal world are often cited as the main reasons for why we should leave cash behind. Cashless payments are faster and more convenient while paper money contains viruses and bacteria, which became a concern during the pandemic. According to the World Health Organization, coronavirus stays on paper for three to four days — during this time the bill can pass through many hands. 

However, consumers don’t need convincing when it comes to switching to cashless payments. The 2016 U.S. Consumer Behavior Survey found that 75% of respondents preferred a credit or debit card as their payment method, while only 11% of respondents preferred cash. If the study were carried out now, then the numbers of card users would be higher. 

Russia has made the top five cashless countries, especially after the pandemic. However, even before, Russia was actively developing infrastructure for cashless payments — from 2010 to 2018, the number of such payments increased 30-fold.

According to Visa, over the past year, Russians used cash 41% less often when making payments and paying for orders on delivery, while the use of bank cards increased by 41%. Mastercard, in turn, found that 22% of Russians had completely abandoned cash in favor of cards.

The pandemic has accelerated the transition to a cashless society, but this would not have happened if ditching cash had not been so convenient and even profitable. For example, now Tinkoff Bank issues a Tinkoff Black card with a limitless free service from June 21 to June 30. Previously, consumers had to pay 99 rubles a month. 

Cashless payments help you spend less. Customers receive 1% cashback for any purchase. Cardholders also get 3 to 15% back for purchases in three categories that change monthly. Special offers paid for by a Tinkoff Black card guarantee up to 30% refund from the amount spent. For example, you can buy eight English lessons at Skyeng for 7200 rubles, and 2,800 rubles will be returned to you. Considering all these advantages, the reasons for switching to cashless payments become obvious. 

Look beyond the horizon

According to experts, the death of cash is not such a distant prospect. Professor Chris Speed from the University of Edinburgh believes that cash is already losing the battle, and sooner or later will disappear altogether. Anne Boden, CEO of Starling Bank, believes cash will disappear by 2040. Boden assumes that even cards will be a thing of the past and all transactions will be carried out using biometrics.

Many governments are currently looking for ways to make a switch from cash to digital currencies. The Bank of Russia is considering digital rubles, in addition to paper money and non-cash funds. The new ruble could be issued in the form of a digital code.

The need for cashless payments is spreading all over the world driven not only by the consumers but also the governments. In 2014, Indonesia launched the National Cashless Movement, which seeks to restrict cash transactions by promoting alternative payment methods. In 2017, the country banned the cash payments of tolls and introduced laws limiting cash payments to the amount of Rs 100 million ($ 7,190), which, although aimed at curbing bribery and money laundering, also limits the ability to use cash. Over the past years, the volume of non-cash transactions has grown from $847 million to over $10 billion.

Saudi Arabia's Financial Sector Development Program aims to increase the kingdom's online payments share to 70% by 2030, up from 36% in 2019.

Take advantage of the convenience of cashless payments. Get a Tinkoff Black card from June 21 to June 30 and receive limitless free service and all the benefits of a Tinkoff Black card. The Tinkoff Black card allows you to withdraw cash free of charge at any ATM in the world if the amount exceeds three thousand rubles, 100 dollars or euros. Up to 20,000 rubles a month can be transferred free of charge to cards of other banks, and up to 100,000 rubles using the Fast Payment System.

Step into the future, get a Tinkoff Black card now.

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