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Cash Becoming a Thing of the Past

June 23, 1998

NEW YORK (AP) _ Grandma paid cash. Dad wrote checks. Baby boomers flash credit cards as their children are prodded to acquire the new toys of electronic commerce.

As payment methods are sold like soap, a person is portrayed as wealthy if he uses a platinum credit card, smart if she has her monthly phone bill automatically debited from her account, hip if he buys things online.

Cash, by contrast, is becoming trash. It is dirty, cumbersome, easily counterfeited, subject to theft and expensive to track. Even worse in an American society that worships technology, it is old-fashioned.

People walk by a stray penny or dime without stopping to pick it up, and is it any wonder? In some situations, even dollar bills are a nuisance, if not a pariah.

Some merchants won’t even accept the stuff as legal tender. In Los Angeles and other places, Federal Express outlets don’t take cash. And don’t even think about trying to use pennies or bills to pay for a ride on a city bus in New York.

Today, you can drive through toll booths in Denver and other cities with a silicon chip mounted on your windshield that can be scanned from a distance. Soon the average person, like the very wealthy, won’t have to handle money at all.

If the people plotting this revolution get to finish it, cash will completely transmogrify into clean, safe, ultra-modern electronic signals zapped instantaneously through the Internet.

Having cut its tether to gold years ago, money would become pure information, its value determined in part by how long it takes to get from payer to payee.

But, cautions Jerome Svigals, a Redwood City, Calif., computer scientist and electronic money expert, ``I think it’s going to be a not-quiet revolution.″

Take the example of Jean Messman. The 55-year-old has come a long way since the early 1980s when she stashed cash, wrapped in aluminum foil, in the freezer at her Green Bay, Wis., home.

``My husband had this idea that if there’s a fire, it won’t burn,″ she explains.

``With three girls at home, we never knew when cash would be needed, and my husband didn’t believe in writing a check for anything under $50.″

Mrs. Messman no longer keeps her money in the freezer, but after her husband died a few years ago, she cut up her credit cards to limit her spending.

It’s not that Mrs. Messman eschews technology. She has the paycheck from her job as a motel desk clerk electronically deposited into her bank account. She uses a debit card when she can, although, she said, ``not all of the smaller restaurants in Green Bay here accept that.″ Mrs. Messman otherwise prefers to pay with cash or a check; she doesn’t like the feeling of living on borrowed money.

Her daughter Kelly Messman, illustrates the generational difference.

Kelly, a 26-year-old account manager for Morningstar Inc. in Chicago, charges wherever she can to rack up frequent flyer miles, and then carefully pays off her credit card balances every month.

Actually, both women’s strategies make bankers cringe. Banks don’t make money on Mrs. Messman’s cash transactions. And Kelly’s credit cards, because they have a grace period before interest starts accumulating, amount to a free 30-day loan from the card issuer.

Ideally, banks want their customers to charge everything, then make the minimum payment on the cards month after month. Barring that, banks want them to use bank-issued debit cards, a relatively recent innovation in payment systems.

Unlike credit transactions, which get settled later, debit cards take money out of a bank account instantaneously without the accompanying interest charges that concern Mrs. Messman.

Debit cards come either in the form of a smart card, which has a silicon chip on it, or with the older, magnetic stripe technology. Eventually, banks will want to charge a small fee every time the cards are used, without taking the risk of extending credit.

That will take some convincing. Studies show American consumers want debit cards for convenience, but they don’t seem willing to pay much for them.

``One of the concerns for credit card issuers has been for a long time, ’How do you make money on debit cards?‴ said David Gagy, marketing director at Auriemma Consulting Group.

Banks are working hard to figure that out. In their future world, cash and even checks would become dinosaurs, replaced entirely by electronic commerce.

Money instead would become information that moves around on bank-owned computers, which would allow banks to retain control over _ and charge for _ its transmission.

But while the use of electronic and Internet commerce is growing, at many checkout counters and gas pumps and coffee shops across the country, some Americans are back in Jurassic Park.

Michael Glanton, of Elmira, N.Y., has one credit card, so that if his 1988 Buick LeSabre ever fails, he can rent a car to visit his daughters.

``I’ve seen so many young couples, especially, ruined because of the access to credit cards in this country,″ Glanton said. ``If you max one out, send away for another one. Before you know it you’re $20,000 in debt. They think it’s the goose that laid the golden egg.″

The 64-year-old retired printer writes checks only for utility payments and won’t use an automated teller machine.

``I trust people a lot more than I trust digital machines,″ he said.

Few Americans are as dedicated to being debt-free as Glanton. But we do like our cash. The next best thing is paper checks, only one mutation beyond the green stuff and nearly as expensive to process.

The United States generates 60 percent of all the checks written in the world, according to check printer Deluxe Corp. And check use continues to grow, albeit slowly at about 3 percent a year _ about as fast as inflation _ while it declines in other parts of the developed world, according to the Office of the Comptroller of the Currency.

``The U.S. is technologically one of the most advanced countries in the world,″ Gagy said. ``It just seems strange to me that it’s using a method of payment that’s been around hundreds of years, whereas Europe is driving the checks out as fast as it can.″

Paper-based transactions _ cash and checks _ accounted for 75 percent of all payments made in the United States in 1996, down from 80 percent in 1995, according to The Nilson Report, an Oxnard, Calif., consumer payments research company. Figures for 1996 were the most recent year available.

Nilson expects that number to fall to 65 percent by the year 2000, and to 46 percent in 2005, as debit cards grow more popular.

But while debit transactions slowly replace cash, and credit card usage has reached truly addictive proportions in some circles, a significant number of Americans still resist the banks’ entreaties to use plastic.

It comes down to issues of privacy and trust. Some don’t trust banks and computers. Others want to hide transactions from governmental authorities or even their spouses.

And many Americans just like to handle their money, smell it, count it and jingle it in their pockets.

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