The Death of Cash | Hacker News Reader

The Death of Cash

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90 pointsJacobAldridge122 comments

The push to abolish cash isn't about its supposed archaic or primitive nature, it is all about power and nothing else.

On the one hand the state would know about every transaction made, on the other hand the state would hold immense power over its citizens by being able to flip a switch and shut certain persons out of this system. (by freezing their accounts)

And then there's another aspect: In a cashless society only the ones that have jobs or can afford to incorporate a business could earn money. All the others would have to barter with smuggled cigarettes or vodka and even then they'd be unable to pay their electricity bill with whatever they've earned this way.

In tough economic times there are many people that cannot get a regular job nor can afford to incorporate a business, and working illegally on construction sites or something like that has traditionally been a way for them and their families to survive and work themselves out of the gutter.

If you take that away from them, they'll have to fully submit to the social system and I honestly doubt that this is a better way.

Our western societies are slowly turning in a modern version of the Soviet Union, where the state has even more control over its population and its thoughts than the Soviet Union ever had.

At least the Soviet Union had the decency to grant the masses that stayed clear of politics a safe life without a care in the world.

Here in the West they are not even willing to give us that for giving our governments absolute control. The masses at the bottom have to struggle for mere survival.

"the Soviet Union had the decency to grant the masses that stayed clear of politics a safe life"

I have to note that it's only true about late Soviet Union (1955 onwards?), because earlier Soviet Union was explosively unsafe country where you could be shot "for being a spy to Japan", relocated to uninhabited island in Siberia during Winter to freeze there, or just starve in one of famines.

You are absolutely correct. The bolshevik takeover of the country resulted in a fierce civil war where they basically wiped out the previous intelligentsia and large parts of the church.

And then there were external threats (causing paranoia) and massive mismanagement because they ran their economy according to utopian phantasies, similar to what the Chinese did. (which also resulted in tens of millions starving to death)

Only after the second world war the continent was sufficiently stabilized for a few decades and that's when the masses lived a decent life compared to what they had before.

Interesting spelling of 'phantasies'. I hadn't seen that before.

Is it wrong in English or just unusual? I'm from a German speaking country and we use the word "Phantasie", so that's why I used "ph" instead of "f".

There are some clinical uses in psychology, but otherwise it's wrong.

It's an archaic spelling, which is always cooler. :)

While I agree with most of your points, I think the informal economy mainly exists for tax avoidance, and not because very short term jobs involve an onorous amount of paperwork. If this is correct, then those jobs would still exist in a cashless society, it's just that they would have to pay tax.

> I think the informal economy mainly exists for tax avoidance

Garage sales and lending your buddy five bucks are also part of that "informal" economy. Without cash, the government would be dipping its beak into those transactions as well.

The governent already ignores small electronic transactions as not worth the time to collect. I don't see how a cashless economy changes this.

They ignore it now

They used to ignore cash transactions for the same reason. The advance of technology makes everything cheaper, and sometimes that's bad.

That's the real reason they want to get rid of cash. They want to make it impossible for any economic activity to occur without the government approving and getting a cut.

I don't think it will actually work. Were the US to get rid of cash tax cheats and drug dealers would simply switch to GBPs, euros, or yen. Or drugs.

The only people who will be absolutely locked into the system are cubicle dwellers, but that's already pretty much the case.

I think this depends upon who you are, giant multinationals have no problem filling out the paperwork for day laborers.

Some guy who want some help with his yard-work one Saturday, probably is just going to skip hiring a day laborer if he has to register with the state as an employer and fill out all the local, state and federal income tax and employment tax forms for a days work. Even if the amount of money to pay that tax is trivial.

I think the informal economy exists to avoid both taxes and paperwork. And for some things the cost of the paperwork is significantly higher than the cost of the taxes.

Oddly enough, much of the formal economy seems to be based on tax avoidance as well: shelters, offshore payments/banking, Double Irish with a Dutch Sandwich, etc.

http://www.investopedia.com/terms/d/double-irish-with-a-dutc...

That's not completely true. There are, at least in the US Sunbelt, large numbers of people who exist more or less off the books. It is only partially about tax avoidance. As the difference* between U3 and U6 unemployment has risen, this will only increase.

To the extent that funds from the above-board economy transfer to the informal economy, the taxes are simply paid by the last person in the chain who paid taxes.

*they're narrowing now, but it is anyone's guess as to whether the big jump from the 2008 time frame is permanent or not.

i think you may be overselling it a bit. the government didn't invent all these new payment methods. they're the ones who still mint and print currency. when they stop doing that, i'll start worrying.

also, to date i have not been unable to spend cash anywhere or with anyone, that i can remember. this includes traveling to asia and europe and south america. in fact the global trend is that most people still prefer to be paid in cash. i know i sure do. when people ask me if i take venmo or paypal i just roll my eyes.

it almost seems the more electronic methods pop up, the scarcer cash gets, the more cash is in demand.

hmmm. didn't they teach us something about that in econ 1a...

> didn't they teach us something about that in econ 1a...

Cash is desired by some businesses because of lower transactional costs, though, not due to scarcity. It's a superior good (along some axes and for some people) and is valued as such.

strictly defined, electronic payments and cash payments of the same denomination are the same currency, since they are nominally equivalent, but i'm going to posit that they're diverging and will functionally become two different currencies as the proliferation of electronic payments and easy/cheap credit continues. i think when a good or service can be sold for different prices ("cash discount"), it's going in that direction.

Of course the government didn't invent these payment methods, businessmen like you and I did. I'm not against cashless payment, I'm using these services myself.

I'm against the government having too much power and regulating every detail of life.

yes but it seems like in this case government is the only one providing the free alternative! an exclusivity provided by design of a sovereign state obviously, but ironic nonetheless. that's why i say when it stops, i'll worry.

While that's all true I think this all started when credit card providers and businesses figured out how much valuable data they can extract out of one's purchase history.

Of course once the data is all aggregated within the databases of the two or three credit card providers in the country, it's easy for the state to dip his fingers in.

The view from the other side is that people can't get an unfair edge anymore by not paying taxes. Gang criminality can be fought of more easily simply because it will harder for them to earn money illegally. No more underpaid illegal workers in the building industry leading to cut wages for legitimate workers.

>The view from the other side is that people can't get an unfair edge anymore by not paying taxes.

It's mostly rich people and corporations that are not paying taxes through legal holes, off shore accounts, special tax breaks from their pals in the gov etc, and they'll continue to do so, cash or not. Heck, they already do it with virtual money.

And seeing as 10% of the population (or less) holds 80% of the money, it's those few that the big losses result from.

>Gang criminality can be fought of more easily simply because it will harder for them to earn money illegally.

There are lots of ways they can launder their virtual money. Mafia has tons of reputable establishments for example. A guy gets his drugs and in return has to buy X or Y overpriced good with a credit card.

> At least the Soviet Union had the decency to grant the masses that stayed clear of politics a safe life without a care in the world.

Unless, of course, they lived in the same country as some people who didn't stay clear.

https://en.wikipedia.org/wiki/Holodomor

Actually, famines happened all over Soviet Union. You could live anywhere.

I recall recently the Norweigians suggestion when all cash Is electronic they could influence the economic situation by mandating -ve interest rates.

And yes that is as Orwellian as it sounds

You can already mandate negative interest rates by creating inflation.

True but this would be directly effecting citizens bank accounts

It is as Orwellian as it sounds, but the population will probably turn to underground "banks", I-owe-yous and what-not. And barter too.

I big chunk of us operate on those side channels already.

This is true. Why the downvotes?

Very good question.

An aspect of viewing every transaction is that it allows you locate anyone geographically. As long as you buy a train ticket, or gas for a car, or a sandwich, your location is recorded.

>nor can afford to incorporate a business

You don't need to incorporate to be self-employed. The costs are essentially zero.

Depending on where you are living of course.

I'm giving you here an example of Austria (EU): If you want to earn more than around 5000 dollars a year, you HAVE to incorporate. The cheapest setup will still cost you a few hundred dollars per year, but from start to incorporation it will take you at least 2-3 weeks.

Many will need the services of a tax consultant to deal with the taxes, which also involves some costs. (If you are employed the company has to deal with the taxes for you)

Then there are also liability issues depending on how you incorporated. Something similar to a LLC costs more to incorporate, but with the cheaper ones you are liable with your private property. (if you get sued by a customer they could take your house)

Another issue is that you don't receive social services like unemployment benefits if it didn't work out for you. And then you also pay more for health services than normal employees.

These are a lot of issues for someone just trying to make a few bucks because he/she has for some reason or another financial problems.

It's not some insurmountable problem for entrepreneurs that have a reasonable plan and some money saved up, but we are talking about people that are trying to get through a tough year. In such a situation the additional risks when you are already at the bottom are for many not acceptable.

Maybe in your country.

In my country to be self-employed you have to register and pay "freelancer" insurance cost to the state that add up to something equivalent to $800 per month (nominally $300-$400 in our economy).

In most US states you need a business license.

People incorporate for a reason, though. If you don't your personal assets aren't protected if the business gets sued or becomes insolvent.

There's a reason Donald Trump still has lots of money after having his businesses go bankrupt four times.

A corporation isn't a magic shield. The limited liability exists mostly to allow investors to own stock in large enterprises without being exposed to more liability than the value of their shares.

Trump is/was doing multimillion dollar real estate development with outside investor's money, and observing lots of corporate formalities. That's why his businesses could go bankrupt without wiping him out.

If I represent a creditor, I'm not going to care if your chickenshit small business is incorporated or not, particularly if it's just a professional services business like a consultant. I'll just sue you AND your corporation. Besides, most creditors that loan to small businesses demand personal guarantees from the owners.

Just having a corporation won't make you Donald Trump. But it might earn your tax preparer some fees.

>If I represent a creditor, I'm not going to care if your chickenshit small business is incorporated or not, particularly if it's just a professional services business like a consultant. I'll just sue you AND your corporation.

You can sue anybody you want. The question is always whether or not you can prevail. If you're just a creditor you would almost certainly be unable to get a judgement against the individual unless he did something stupid like spend corporate money on personal items.

Doing stupid things is common in the small business world. For example, I regularly run across people who have no personal bank account and just use the company account for everything. In practice, there is almost always something about how things are run (particularly with a failing company) that is actionably questionable and pulls the owner personally into the suit.

I wouldn't have wanted to be a farmer when Lysenko was still considered "the man".

One other point is in a cashless society it becomes easier to institute a negative interest rate policy.

https://en.wikipedia.org/wiki/Interest_rate#Negative_interes...

Cash may not always be so anonymous. It seems plausible that banks at some point may start tracking bank notes by serial, or some other method, which would be very useful for law enforcement and the IRS.

Example: Alice withdraws $100 from an ATM to buy illegal drugs from Bob, who then deposits it in his bank to pay rent. Bob is later found guilty of distributing drugs. Law enforcement could now request from his bank his deposit history, including bank note serial numbers. Repeated deposits of banknotes that were last seen from Alice could lead investigators to her door.

It's the kind of big data tracking scheme that 10 years ago would be impossibly hard to do, but with today's technology wouldn't be so hard.

I don't think people will accept this. For people with other means of payment, the main function of cash is anonymous transactions. There is no other way to anonymously transfer money. The article incorrectly lists bitcoin as being anonymous when it's quite the opposite (though with some finagling can approach the functionality of anonymity.)

Also, in your example above, who's to say that Alice didn't give the money to Joe who then gave it to Bob? Or that Alice didn't buy something legal from Bob? Simply having serial numbers and tracking the money is not enough if the money can be transferred without the transactions being recorded (like they are at a bank). That immediately makes it a lot less useful for law enforcement.

I don't think that would work so well, since you could never prove how many intermediary cash-only transactions the bill has gone through before it was seen by the bank again.

Agreed, for a single transaction it would not meet the "beyond a reasonable doubt" threshold. However it might be possible to build a stronger case around a pattern of transactions, e.g. bills withdrawn from the ATM by Alice routinely appear in bank deposits by Bob. At some point this would harder to explain as random chance.

There were only 15,497,240,200 EURO banknotes in circulation in June 2013 [1]. There is a study which says most go straight from the ATM to the consumer to the merchant and back to the bank. Using a big data engine, it would be very easy to trace:

- Banknotes withdrawn by a person, which haven't been seen for 2 or 3 months,

- Banknotes caught in drug cartel offenses and the consumer who withdrew them,

- Banknotes regularly withdrawn in rich neighbourhoods and spent in poor neighbourhoods, minus direct employees of rich neighbourhoods. Banknotes deposited to a bank for the purchase of second hand cars.

- As a side note, pattern changes in someone's CC spendings. A gap may mean he's aggregating money to invest on the black market.

[1] https://en.m.wikipedia.org/wiki/Euro_banknotes#Circulation

That's honestly trivial to thwart if you're aware that such tracking exists.

Alice can just withdraw a big note and break it up by buying a coffee, then use the change from that transaction to buy the drugs instead.

Granted, some extra creativity would be required for drug purchases involving large amounts of cash

That thwarting is honestly trivial to counterthwart without even trying. The register at the coffee shop knows which note Alice paid with and which ones they gave in change.

Knows that a note Alice withdrew was received and what notes were exchanged. But not necessarily that it was Alice (though other data might corroborate that).

If I buy coffee at Starbucks with a $5 bill, and you come in later, pay with a $20 and get my $5 in change, in order for the government to follow the money like that Starbucks would have to scan every bill and correlate the scans with individual transactions. Even if people were okay with that (which I doubt), it would be a costly imposition on businesses and a huge time waster for everyone.

Until it becomes standard in all registers.

Doesn't matter. You'd still have to feed the bills, individually, into some kind of scanner.

"It seems plausible that banks at some point may start tracking bank notes by serial, or some other method"

I would be very surprised if this is not already happening.

It's now an option on ATMs.[1][2] Especially in China, where the People's Bank of China has required it for all ATMs.[3] "As at the end of June 2013, there are 197,800 ATMs in use on the mainland, of which 100,700 or 55.28% have been upgraded with the serial number enquiry function. According to schedule, by late 2015, the serial number of every Rmb100 note withdrawn from banks by members of the public can be traced."

Here's an overview of the available hardware.[4] Not only ATMs are recording serial numbers. So are cash counting and sorting machines.

[1] http://www.atmmarketplace.com/news/ci-tech-intros-retrofit-s... [2] http://www.diebold.com/~/media/diebold/diebold-asset-library... [3] http://economists-pick-research.hktdc.com/business-news/arti... [4] http://currencypath.blogspot.com/

What's the big deal in the article about tracking? I think the vast majority of people don't really give a damn about being "tracked".

They just take cash anonymity for granted.

Banks would start tracking notes if they had some reason to, but they don't. Getting big companies to coordinate to do something new is extremely hard.

Bank note serial numbers are used today, to estimate the average lifespan of a note (a 5 pound note has around a 6 month lifespan on average IIRC). And something like 95% of 20 pound notes have traces of cocaine on them.

I still only use cash everywhere it is possible to do so. Handing over a physical wad of cash or breaking into a £20 note is a mentally painful barrier that stops me spending any more than I have to. For me at least, handing over a piece of plastic and typing in a PIN doesn't carry the same weight yet.

I do the same. Having to find an atm is also good at stopping me from getting money out for small spends like coffee or cake that I really don't need.

For me it's not so much that handing over cash is mentally more painful. It's just that cash is inconvenient to obtain, so if I don't have enough of it on me, I won't buy that drink in the shop when I'm only 20 minutes from home. With plastic, there's always enough money, so I don't even have to think about it.

> People value cash differently than they value electronic money, even though the two have the exact same value.

Except when they don't. To a Greek, 100k EUR in the bank today is worth some percentage of 100k EUR. His account is illiquid. There are currency controls. There may or may not be a "deposit haircut", like in Cyprus, where the numbers in the databases were simply all reduced.

By the way, I'm very curious what the percentage is. The Greek guy certainly can't withdraw his 100k EUR retirement savings as cash, nor can he transfer them outside the country. He can still wire the money to another customer at the same Greek bank though, right? Say he finds someone on Craigslist who's willing to give him 90k EUR cash in return for that transfer. That would mean one Greek-bank-account-EUR is worth roughly 0.90 EUR. What's the actual rate right now?

Bank accounts of every kind share an important property: they have counterparties. Colloquially, money may be "in an account", but in reality, your account is on the bank's balance sheet as a liability. When you deposit, you are actually lending your counterparty money.

Some accounts have a reasonably trustworthy counterparty. Others, like a Cypriot savings account a few years ago, or an account at MtGox for that matter, did not.

The idea that $X in a bank account is always worth the same as $X cash is a reassuring fiction.

Counterparties are unavoidable in a centralized system. Counterparties vary in trustworthiness, and even a trustworthy counterparty today might not be tomorrow.

I think this is a fundamental advantage of decentralized stores of value, including paper cash.

"There is simply no alternative system of payment that is as convenient, reliable and anonymous. Bitcoin is anonymous, but currently unstable and inconvenient"

Being a nerd

I have been using bitcoin since 2011, in last year almost on a daily basis, yes the rate is volatile but this will not be an issue once more people use it and the number is growing for sure (especially in the last few weeks alot of females joining the community due to backpage.com visa/mastercard ban), before this months rise the rate was remarkably stable for almost half a year

As for "convenience" i find bitcoin a lot more damned convenient (and secure) than credit cards and delighted everytime i see it as a payment method, all i have to do is scan a QR code with my mycelium android phone wallet and send bitcoin with few taps, for storage I have a tiny USB hardware wallet (trezor) on my desk which keeps the private keys safe even if my computer gets infected

150% agreed on the convenience. It's just far and away the most convenient method of electronic payment right now. Bar none.

However, how are you using it daily? I struggle to find places to accept Bitcoin.

I get paid by a trade partner in Singapore almost daily with bitcoin, saves us both a large chunk (and time) on wire transfers!

I also rent out some of our servers for bitcoin (via bitpay) since there is no chargeback risk server (looks sideways at paypal/credit cards) of someone renting the server for a month and then leaving me with pants down at ankles and no money.

As for spending bitcoin:

* I have been buying all my hotels for a year now with expedia.com

* All my shopping at amazon.com been via giftcards bought at gyft.com, same for amazon.co.uk and giftoff.com, there are many other places they sell giftcards for but these are the main ones i use every week.

* For testing/deployment VPSs I have been using vultr.com

* I pay regularly my utility bills like electric, phone, water using bitwa.la

I even done a localbitcoins meetup and sold bitcoin for cash in last month, we had a great time having a coffee(s) and nerd chat during the trade :)

Interesting, thank you. I was just looking at expedia, but I saw some horror story articles which made me think that their Bitcoin integration is a second-class citizen. Unfortunately most of the services are US or UK only (it's hard living in a place with no Amazon :p).

Oh I am in Ireland, dont get me started on Amazon (its hit and miss at times when it comes to deliverability)

As for Expedia their integration could be better (need to use a US ip for coinbase payment option to even show up nowadays) but had no issues spending thousands with them, if it wasnt for bitcoin I just use any of their dozens of competitors, so one little change and they got a loyal customer. I heard of cheapair.com accepting bitcoin for flights but I have not tried it yet

that reminds me: VPN from purevpn.com :D bought with bitcoin as well for wathching BBC etc and surfing more anonymously

Funny, I was just reading an article about WIRED's startup of the week, Velocity, an app pushing for transactionless restaurants, kind of the same way Uber takes the payment step out of cabs. (ie, you still pay, but it's not a big process.)

BBC focuses on BTC, but maybe apps are the best path to the death of cash.

Of course you never truly get rid of an anonymous fungible medium of exchange. There were a surge in Tide detergent thefts starting a few years back, to use it as a currency.

1. http://www.wired.co.uk/news/archive/2015-07/24/startup-of-th...

2. http://www.theatlantic.com/business/archive/2012/03/why-are-...

3. http://www.businessinsider.com/the-tide-black-market-2013-1?...

4. http://nymag.com/news/features/tide-detergent-drugs-2013-1/

Cash is pretty much dead for me and has been for years. My wife and I use a credit card for every purchase we can, big or small. And we've never carried a balance, paying it off in full each month. I'm continually astounded at the offers that arrive in the mail such as "Spend $3000 in the first three months and get $500 in gift cards" (to places we go anyway). It's free money to us, paid for I assume by the high rates and carried-balances that others have.

Now think how an average Greek person feels when their banking system no longer works, denied access to electronic transactions and when bank accounts hold mere numbers that may or may not be actually recognized (or downright confiscated).

It's hard to imagine how the Greek banking system is going to recover from this. Everyone loaned them all of their money, and they weren't even getting any interest on it. Now they have to stand in line for 60 euros per day when it could have been in their mattress the whole time.

The bigger problem is that money people have in banks, which is not borrowed and only belongs to private citizens is being plundered or destroyed. Second to that is an inability to access modern forms of transactions, which make running IT companies (and not only) an impossibility.

What's more, with the miracle of credit creation by modern banking, only 5% of their money is actually in the bank--the rest is out making more money for the bank.

It's all a consensual hallucination which works only as long as everyone still has confidence in the system.

>It's all a consensual hallucination which works only as long as everyone still has confidence in the system.

Yes, but delusion is not as irrational as it sounds. http://www.interfluidity.com/v2/2669.html

It's only an illusion when the central bank is unwilling to inject money into the system in the event of a bank run. The central bank has to maintain somewhat of an equivalence between money stored in banks and cash. It depends on if banks become merely "money vaults" or investment/speculative vehicles.

Gold, Bitcoin and paper cash are also subject to confiscation, tax or other legal controls, speculation and devaluation. There is no safe haven from a government which wants to confiscate your belongings or redistribute wealth.

> paid for I assume by the high rates and carried-balances that others have.

And the merchant fees the retailers pay, to receive the money at the point of sale. Credit card companies make their money at both ends :)

Yeah, that "free money" is priced in to the cost of goods/services at firms that accept the cards. This is why you sometimes see a lower cash price, like at smaller gas stations etc.

When I started to become poor, I started valueing cash. As soon as I had some balance on my account, I would withdraw it.

Why? So no automatic payments would succeed which were running on the account, immediatly destroying my balance.

With cash in your pocket you can buy food.

Yeah, I learned to avoid automatic payments when I was poor, and have never chosen to trust them since. I don't care how convenient it is, I'm not letting somebody else's bank determine my financial priorities.

The credit card companiesand banks probably make most of their money from charging the merchants. Not from the rates on customers.

The "credit card companies" (i.e. the networks like Visa) make their money from the transaction fees which they split with the issuing banks. The transaction fees are also a significant money-maker for the banks but my understanding is that they typically make more from interest and fees (including both annual fees and late fees). Unsurprisingly the high-end cards make relatively less from interest.

I was in Greece a few weeks ago. ATMs did not worked, shops would not accept credit cards. Good luck without cash.

You must have been to a different Greece, because I haven't seen an ATM that didn't work, or a shop that wouldn't accept credit cards.

Then again, we do everything with cash, and cards are used for a very small minority of transactions. Your "good luck without cash" is self-defeating, because you're effectively saying "I was in a cash-only society the other day, good luck without cash". All this proves is that cash is not only alive and well, but king, at least in certain parts of the world.

I counted dozens ATMs out of cash in Athens. And technically ATMs are still not working, since there are strict withdrawal limits. And card did not worked, otherwise Greeks would just raided shops, buy stuff, and empty their bank accounts.

And I see no problem in my comment. If cards would stop working in society which does not use cash at all, it would be even worse.

Here in Hong Kong we have a contactless payment card called the Octopus, one of the most successful of its kind worldwide, and the basis for London's Oyster card.

It's been around for almost two decades now. With the exception of taxis and smaller shops, Octopus is accepted pretty much everywhere. If I randomly decided to stop using cash for a month, it wouldn't be too hard.

Nonetheless, cash is still everywhere. Some part due to necessity but mostly human nature.

"On July 20, Octopus acknowledged selling customers' personal details to Cigna and CPP, and started an internal review of their data practices" [1]

That does not inspire confidence in me. The government is also the largest stakeholder in the company and I assume they and their security forces must love all the data it generates.

[1] https://en.wikipedia.org/wiki/Octopus_card#Privacy_abuse

This article, and many of the comments here, seem to be a very UK or US centric view to me.

I'm from NZ and the use of cash is very rare here. People generally use EFTPOS cards or credit cards to pay for everything, from coffee or taxis to major purchases. The biggest annoyance when travelling (especially to the states) is the need to get out and carry cash again which for me (in my thirties) is something I haven't done here since my early teens.

Maybe we just fear our government less, but I think we also have a more postmodernist view: We were one of the quickest to adopt EFTPOS. We also don't have a weird tipping culture, which helps :)

Ask people from central Florida how well things went for those with no cash when the last Hurricane came through and wiped out all electricity for a few weeks.

From the recently posted article about Uber:

> "Using Uber requires having a credit card, the lack of which, for many residents of the Bronx, one green-taxi driver once told me, made getting fares there very hard."

What does that mean? Does it mean poor/working class people don't have bank accounts in the Bronx? Or does it mean Uber requires credit (and not merely a debit) card? I can see why an unemployed/poor person wouldn't have any credit, and thus no credit card. I don't understand why that person wouldn't have just a bank account with a debit card?

> I don't understand why that person wouldn't have just a bank account with a debit card?

http://www.newyorker.com/business/currency/the-high-cost-for...

Basically, the poor can't absorb the fees, float, and inconvenience of a regular bank.

> Only thirty-nine per cent of non-interest-bearing checking accounts were free in 2011,

Thanks. So 39% of the types of checking accounts investigated were actually free.

If there is no bank that offers a $0/year account with a $0/year debit mastercard attached to it, then something is seriously wrong with the competition in the US consumer banking market.

The article goes on a lot about payday loans, check cashing and so on, and mentions "fees" but doesn't really specify what those fees are, but checks and the fees and problems with them seem to be at the root of the problem.

Couldn't Joe from the Bronx who works at McDonalds just get his $15/h straight to his no-fee account every month? Then buy his gas and toilet paper with his $0/year mastercard? This is how I (and likely much the rest of the world) has done it for many years now.

There is plenty of competition on that side. The bigger problems are that these people are uneducated and don't trust banks. They also frequently get part or all of their income in ways that dissuade from from putting it in banks because they do not want to pay taxes on it or have to explain what illegal things they did to earn it.

The bank is not a public good. Think about how they keep the lights on: they reinvest the capital of their clients. If their clients are bringing them hundreds of thousands of dollars each the economics can work; less so for the client with hundreds of dollars. The bank doesn't really want these clients, they can't make money off their capital, so they hit them with fees whenever they can. All "no fee" accounts that I know of have requirements that must be met -- usually a minimum balance, plus (or alternatively) some various combination of others specific to the account.

In my experience, the most reasonable of these accounts require you to have at least $100 in your account for the entire monthly period -- if you dip below at any time, you get charged $12 for the month. And then to boot, if you didn't have $12, they might also hit you with a $34 overdraft fee.

To much of "the rest" of the world, this is unacceptable.

The cost of just creating and maintaining an empty an account (a record in a database) is about zero, and the debit card company (MasterCard) doesn't really have any costs associated with a card until it's used, at which point there is a transaction fee anyway!

It still seems to me that banks should be really eager to just soak up these "unbanked" customers, even if just a small fraction of them ever turn out to generate income in the future. (Say 1/100 inherits some money and starts saving, and 1/100 buy a house with a mortgage. That should easily pay for the 98 people with perpetually empty accounts).

Maybe there are some regulations that create per-customer overhead costs in the US? For example, if it's required that banks send out annual statements on paper to their customers, that would be a per-customer cost.

An account isn't at all just a record in a database. There are tons of marginal costs involved.

It seems to me like you should start a banking startup for these customers and get a lesson in how the real world works. Your math alone is laughable.

Well, where I live (also in the real world) there are many banks that are happy to provide no-fee accounts without any strings attached such as minimum balance).

So the math can't be that laughable. Can you give me an example of the marginal costs of a customer opening an account?

The only way we can have so many banks offering these services for free must be that they have very small marginal costs and/or the average expected future profit from these customers is higher than the marginal costs.

Conversely, the only reason this isn't the situation in the U.S. must be higher marginal costs and/or lower expected future profits.

So, if that reasoning is sound, my question is: what drives the marginal cost up in the US (regulation? low demand for online-only banking e.g due to check use?), or, if that is the case, what drives the expected profit down? Low social mobility? (I.e too low percentage of customers expected to have large savings or mortgages within N years in the same bank)

No, the math is still pretty bad. Are there laws in your particular backwater that require banks to offer these no-strings-attached accounts? Why should banks otherwise forsake the profits from their mortgage on 98 leeches?

Every single customer that comes in requires services from a human that must be paid a salary, a share of a branch that has to pay rent and utilities, the cost of auditing, insurance, and paper trails for everything they do, and that's without even getting started. What platonic realm do you inhabit where these things aren't required? Do you also exist on a diet of pure light?

There are no laws requiring this, since if there was, all banks would provide it, but not all do. Those who do are few of the big traditional banks, but mostly newer disruptive banks, such as those started by retail chains.

"every single customer that comes in requires services from a human..."

That's only if there are physical branches! I'm almost starting to think you think I'm making stuff up. So let me explain (this is Sweden by the way):

Many banks here don't have physical offices at all, or just provide banking services through existing infrastructure (some large retail chains, for example IKEA and our largest grocery chain). All banks, but especially the large commercial banks with physical branches charge huge fees for the manual transactions (paying a bill in a physical branch can be $5-$15), as to discourage manual service. Only elderly people use manual bank services these days and physical branches closed in large numbers starting 15 years ago, since most banking moved to the Internet. I haven't used a manual banking service (paid a bill, cashed a check, deposited cash...) in ten years.

I'm not sure what the marginal costs of audits, insurances and so on are for our banks, but apparently lower than the expected income from a customer. You know how McDonalds sell you a $1 item at a loss just to get you in the door (a "loss leader")? - this could well be a case of that, and that would make a lot of sense. As everyone is always paid salary to a bank account here, I imagine the average customer can be pretty attractive; Everyone with a legal employment of any kind will have money in their accounts. The bank just needs to believe that the expected income of a new customer is greater than the marginal costs. I do believe banks here have very nearly zero marginal cost for a customer that opens an account themselves using electronic ID, and never uses a physical branch. I also think the expected future profit from a customer can be pretty big because of how the economy works with high employment and all salaries paid to bank accounts.

So, almost entirely different from the Bronx. "Joe from the Bronx" would never trust a bank that made him do everything online, and to be honest, neither would I. He gets most of his income in cash under the table so what does he care about automatic direct deposit?

I get it, you live in Sweden, you don't have an underclass, you're completely digital, but you're out of touch with what reality is for most people.

There is a significant percentage of the population without banking. The underbanked and unbanked percent in the US is pretty alarming to me. .[0]

[0] - https://www.fdic.gov/householdsurvey/

There is a significant percentage of the population without banking.

Traditional banks have always despised the poor. Historically this is why immigrants, union members, and other working class people formed credit unions.

I don't know why the unbanked can't use those. Something has changed. A traditional credit union wouldn't kick out a member just because he became unemployed.

I think the bit about cash versus bitcoin in the beginning leaves out an important detail about bitcoin: it doesn't require proximity, which can fraught with risk. In the situation of buying drugs, for example, Silk Road and its ancestors provide safety because people don't have to go to some shady house to buy their drugs. I agree that bitcoins aren't as convenient as cash, and as such I agree with the author that cash is here to stay. But bitcoins fill a niche nothing else can fill right now, and as such, bitcoins are here to stay too.

> people don't have to go to some shady house to buy their drugs

Most people don't go to shady houses, even those with very regular habits.

Cash might be outdated, but I don't like to give all my money to 3-rd party. I like Bitcoin idea: electronic currency, but I have full control over my money. Banks can play with bitcoin, providing their services and their pseudocurrency for microtransactions, but I always feel unsafe when I deposit more than $200.

The advantage of cash is that it's not too difficult for a thief to drain my bank account without traces.

When a thief tries to steal a wad of cash from my home safe though, he has the risk of leaving prints/DNA on the scene, getting caught on camera or being spotted by a neighbour.

Do you think it happens a lot that bank accounts get emptied without traces?

I'm pretty sure it happens a lot that petty theft goes unsolved.

This is essentially the opposite of reality. If someone steals your cash nobody gives a shit. No csi team goes hunting them down.

Bank fraud on the other hand is the banks problem. If someone steals your money the bank makes it whole.

Huh? I don't remember the Cyprese people who got their accounts drained by the government ever got their money back.

With cash the cops would have to raid my apartment to get the money (also likely they wouldn't know about the money in the first place, so no cop raid there!).

And there are countries in which the police would just shoot you and take your cash. That doesn't say anything about whether cash is better than electronic payments, it says don't live in such shitholes.

If America was going to give a "haircut," they'd dilute the money supply instead of just taking 10% from banks.

So yes, uncle sam can steal the money in your mattress without having access.

Or the Fed could release a newDollar and only accept a certain amount of oldDollars. Russia (I think) has done that once or twice.

"the Fed could release a newDollar and only accept a certain amount of oldDollars"

2/3 of oldDollar cash is stored outside the US by people who mostly can't enter the USA without visas etc. And those will be pissed royally.

It would be not wise choice to piss off more people than your own population, however not never done by the USA.

Or, you know, when the thieves leave clear traces, but there's nothing you can do about it because the powers that be are profiting from the loot.

"We'll just take the money in your account, because [insert any political excuse, bonus if it contains the word crisis]."

The discussion here is a story of what happens with every new technology replacing/disrupting an incumbent technology. Early in every new technology's lifespan, many predictions are often made that X new technology will kill Y old technology. However, what is really happening is that X new technology is replacing A, B, C, and D use cases for Y old technology. However, Y technology had use cases A, B, C, D, and E, so Y technology still has use case E and thus still exists. An example of this is the automobile. Horses are still around today and used by humans, despite the prevalence of internal combustion engines. This is something important to think about when evaluating new technologies and their value to society.

For me, the only use case of cash is "The tiny fraction of vendors who don't accept debit."

Oh, and I guess under-the-table payments.

Just my opinion. Soon or later we will have to return all the currencies to the gold standard. The current in debt monetary system is unsustainable.

Gold is not inherently valuable. It's useless. That's why it was used to mint coins in the past, plus the fact that it's hard to get means counterfeiting is hard. Then people started attaching some mystical value quality to gold itself.

Debt, however, is valuable. It's a direct expression of things owed and I very much like being owed stuff. Especially when I can choose what that stuff is later at my convenience.

I see articles here every other week talking about the end of cash and I don't know where they're coming from. This article finally takes a more realistic approach.

The other articles don't match the reality of where I live (Switzerland). I don't think they match the reality of Germany and Austria either, and much of Europe.

People here still pay for their cars in cash. I'm going to my bank on Monday to take out chf 7k to pay for my wife and mine yearly train passes.

Is this just a u.s. And UK phenomena?

I live in the US, and rarely use cash. My spouse and I pay for big ticket items like cars, by writing a check.

I've visited Switzerland a few times, and noticed that the transit system (trains, buses, etc.) creates natural places where people go almost every day, that are convenient locations for things like banks and food stores. There's nothing like that in most of the US. My bank closed its branch office near my house, and now the closest branch is some distance away. So it's an extra trip to get cash.

Now, if I use a check or debit card at the food store, then I can get some extra cash from the transaction. I also get a little bit of cash from playing music. My main use for cash is to give some to my kids if they need to buy something.

Oddly enough, I take $1 bills out of my wallet and leave them at home, so I won't be tempted to buy snacks from vending machines during the day.

The death of cash would ruin Magic City.

Before clicking through, I thought this was going to be about Johnny Cash...

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