The End of Money Draws Near

This is a guest contribution to Finance TnT by Mario Mello, director for Latin America at PayPal. The views expressed are those of the author and not of Finance TnT.

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Maintaining the current conditions for temperature and pressure, live money should disappear at the end of the year — at least in Denmark. The Danish central bank stopped manufacturing bills and coins in 2013 and has been constantly investing in electronic systems. Also, the Danish people have banned the use of cash in clothing stores, gas stations, and restaurants.

The interesting thing is that on the other side of Öresund Bridge, Sweden heads the same way: In five years, its central bank wants for the krone (established in 1873) to be restricted to smartphone screens, tablets, and computers. As usual, the Swedish schedule is in good standing.

There is no need to be jealous, though, in case you are not from Scandinavia. The revolution is going to hit the rest of the world quickly. And it’s logical for it to happen, as everyone will gain from it. The world is already changing in many aspects — from the way we listen to music and watch multimedia content (on demand on the tablet screen) to the way we take taxis (apps on smartphones integrated to a GPS). And all of these, paid through a digital wallet, many times with a single click.

Products like these make (and will make) even more sense in our daily lives. According to a study from North-American IEEE, the biggest professional entity in the world, money — as well as debit and credit cards — will be replaced by payments through mobile devices by 2030 at the latest. In a world where 2.5 billion people are not part of a formal banking system — but have access to a cellphone — the forecast makes a lot of sense.

Mario Mello PayPal

Mario Mello is director of Latin America at PayPal.

The only weakness: Many people still do not feel safe when using the so-called “digital money.” For 46% of the people interviewed by IEEE, the biggest concern with payments through mobile platforms is seeing your data “floating” in a cloud that hackers may have access to. Another 33% are worried by unauthorized payment processing. In addition, 72% believe that online bank services stand the biggest chance of suffering hacker attacks.

Another study about e-commerce from Ipsos, on behalf of PayPal, reveals that the main concern for consumers (more than 51%) when shopping online is safety. This is why it’s essential for companies to use methods that protect the seller and the buyer in the online world. As a matter of fact, nowadays nearly 40% of higher income Latin Americans use PayPal as a method to prevent fraud in their online transactions, according to a study by IDC.

But why would we end a payment method that has worked for nearly three millennia? If we made a list of all the different reasons that specialists all over the world present, maybe this article would transform into a doctoral thesis. However, there are three particularly interesting ones.

First, physical money leads to tax evasion. That is a fact. The U.S. government, for example, loses vast sums in taxes each year due to unregistered cash payments. Second, electronic money is eco-friendly. In addition to the ecologic impact of producing bills and coins, transportation is another pollution factor, not to mention the processing of legal documents that every cash lot produces because of bureaucracy and maintenance of ATM machines. Lastly, physical money is not hygienic. Simply reflect upon how many hands have touched your bill before it got to you.

Thus, we must agree that this last reason would be enough to retire the old mistreated cash, don’t you think?

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