The Future of Cash

SMITH BRAIN TRUST – How much physical cash do you have on you right now?

It’s likely substantially less than you might have carried just a few years ago. And it’s likely that the greenbacks you have on you right now will remain with you awhile longer than they would have just a few years ago.

This is the state of money in 2019. Cash money is becoming increasingly less essential to our lives, replaced by a wider swath of other ways to pay. And it’s changing everything about what it means to be a consumer, says Maryland Smith’s Joseph P. Bailey.

Cash, he says, is fading away in the United States and in much of the world, along with some of the anonymity that once came with its use. And as cash fades, relationship consumerism and influencer consumerism are growing more prominent.

In the United States, 29 percent of adults say that in a typical week they don’t make any purchases using cash, up from 24 percent just three years earlier. Meanwhile, the share of adults who say that all or almost all of their weekly purchases are done using cash has fallen in the past three years, to 18 percent from 24 percent, according to a recent survey from Pew Research Center.

Physical money is falling on hard times in consumer culture, edged out by Apple Pay and Google Pay, PayPal, Venmo, Square, Stripe, digital cash, debit cards, credit cards, and a host of prepaid, insider subscription services and loyalty programs.

“The idea of anonymous cash is really going away,” says Bailey, associate research professor of the decision, operations and information technologies department at the University of Maryland's Robert H. Smith School of Business and executive director of the QUEST Honors Program. “It’s happened as we, as a society, have embraced the idea of giving up our anonymity, for the sake of the convenience that these new kinds of transactions bring.”

Consumers today consent – en masse – to share their purchasing data, a trove of information that reveals the intricacies of who they are, in exchange for perks, discounts or convenience.

In other parts of the world, the move toward cashlessness is further along. Sweden has been described as the most cashless society in the world, with banknotes and coins used in just 1.7 percent of the country’s economy. Chinese cities are also embracing the cashless life, embracing a mobile-phone system that uses encrypted codes for transactions. And in India, some 255 million people are making everyday purchases using the Paytm virtual wallet system backed by China’s Alibaba.

Bartering their anonymity, consumers are often considering more carefully the companies with which they’re transacting. “There is a sort of reciprocal nature to the relationship,” Bailey says.

“If I’m buying from Toms Shoes, which has a social mission as well as a business mission, I am deciding that I want to be associated with Toms, and I know that it says something about who I am as a character.”

A consumer transacting with a lesser-known street vendor, meanwhile, might feel reluctant to give up anonymity. Where once that might have meant using physical currency, or banknotes, in this new age, Bailey says, it likely means paying electronically, via a network of merchants that have a vetting process or signature of quality.

On the day we spoke to Bailey, he had eaten lunch at District Taco, paying for his tacos and guacamole using LevelUp. Just a few weeks earlier, he shopped in Seattle at the Amazon Go store, paying with his Amazon Prime account.

“If you want to look to the future and how we’ll handle money, look to the undergraduates and how they manage their money,” Bailey says. “And then just imagine a world in which they are the majority, and not the rest of us who grew up in a world where we carried around wallets with paper money and maybe coins in our pockets.”

The future of money is going to change the way we think about banking, transactions and anonymity, Bailey says. “And it’s going to move us more toward subscription services, rather than frequent one-off transactions. We will have more relationships, more tie-ins with social media, more ability to actually influence other people’s purchases, when we ourselves are making purchases.”

That’s where things get really interesting, he says, and it’s where blockchain enters the picture.

Bailey envisions that as technology evolves, there will be new incentives for consumers to use digital currencies and to authenticate their purchases using blockchain. “And then I think blockchain could become a very popular way for consumers to become influencers in the market,” he says.

And that could yield substantial benefits for merchants and manufacturers, he adds.

As an example, he says, Unilever has said it envisions using blockchain across its entire supply chain, in part to ensure that it is using sustainable practices, from farmers’ fields to retail stores.

“And as a way to support that, as a consumer, I can close that loop by agreeing to share my influence when I make that transaction,” Bailey says. “I’m being a bit of a futurist here, but I think the consumer is that last component of that very transparent supply chain.”