Are we ready to change the way we interact with our cash?
Daniel Egan, director of behavioral finance at investment advice website Betterment, considers himself a financial technophile. He says that nobody has hit the ‘Holy Grail’ of finding a good substitute for cash.
“When you think about the money that’s been put into financial innovation over the past two decades or so, there have been tremendous amounts spent, usually to the benefit of a very few set of people. So if you think about the fact that we can invest money to lay fiber optic cable across the Arctic Circle to make trades happen milliseconds faster, that’s a lot of money,” says Egan. “Yet, I still have to pay 2.5-3 percent on any credit card transaction. I think that that’s where we’re not seeing efficiencies and innovations that would hit the average consumer like you or me very well.”
Egan says it’s still easier to take out your wallet, pay $3 for a cup of coffee and walk away, compared to taking out your smartphone, unlocking it, opening up the app, and using the vendor’s payment system.
But, there could come a point when we do reach a future where technology makes it easier to, say, use your phone to pay as opposed to cash. “We’re going to really judge these developments and improvements by how much they benefit the average person,” says Egan.
Egan says one of the reasons companies might push consumers towards technology is so they can better track purchases. “Like Mint, the benefit to that company, the reason that you get that service that looks at your spending habits, is because they’re able to sell that data on to somebody else who’s going to use it to understand you better,” says Egan. “Sometimes for better, sometimes because they’re going to refer service providers that are actually going to help you out a lot more, but a lot of times because they want to figure out pricing on various things. How can they figure out how to charge you the right amount?”
Will a future of paying by phone, instead of taking out cash, impact our behavior in terms of things like impulse buying? Egan is optimistic. He thinks it might actually improve our spending habits. An app could tell you how much you’ve spent already, for example, and technology could put hard limits on how much you spend. Or it could send you a message about what your disposable income should be for the week.
A lot of the technologies emerging in finance are for people who can afford smartphones, and have bank accounts or credit cards. What does the future of money look like for the unbanked?
“When you look at how these mobile technologies and smarter technologies have been used throughout the world, and within America, they’re accelerating the rate of adoption among lower-income people much quicker,” says Egan.
What do you think about these new technologies? Good, bad or meh? Leave a comment and let us know.
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