by Lily S

Created on: January 15, 2009   Last Updated: May 29, 2009

The cashless society. It sounds so futuristic, doesn't it? Everything done by plastic and electronics, but at what cost? In truth the cost has been enormous, from the point of view of retailers, consumers, and crime. The only people who benefit from the "cashless society" are the banks and credit card issuers.

Let's take the position of the retailers first. Every time someone pays for goods or services using a credit card instead of cash, the retailer has to pay the credit card supplier an "interchange fee" of between 2% and 2.75% of the value of the transaction. The more people use credit cards, the more it costs business, and there is very little scope on the part of the retailers to negotiate the fee down as the credit card business is practically a monopoly dominated by Visa and Mastercard. Total intercharge payments are now a staggering $42 billion. The intercharge payment is particularly onerous on small businesses who operate on very thin margins. They would actually have a better chance of surviving the recession if their customers used cash.

Then there is the position of the consumer. Credit cards are marketed seductively - the literature always emphasises how you "deserve" that expensive holiday, or new clothes. But unless you pay off your card balance every month, you are essentially borrowing from your future earnings. Not only that, but you are borrowing at exhorbitant interest rates, so that you are paying thousands for things that originally cost just hundreds. Consumers too would benefit if they used cash instead of plastic. The thing about cash is that you either have it, or you don't. You can't take it from your future paypacket. Spending with cash imposes a discipline on people to live within their means. When you use credit cards, you might live extremely well for a year or two on borrowed money, but as the payments and interest mounts, you end up living very badly, with all your earnings swallowed in debt payments. You will be both wealthier and more secure if you switch to using cash.

And then there is electronic crime, which costs government, consumers and business a fortune. It's hard to steal cash - you have to break ino the vaults or hijack the security vans in transit. Stealing credit card information is easy, it can be done by someone sitting at a computer in Russia or China, and all they need is for you to be a little guillible so you allow their trojans onto your computer. Or a thief only needs to go through your rubbish bins to find your old statements with your account numbers or to put a card reader on top of an unguarded ATM to copy your information. This kind of crime would plummet if people switched back to cash.

Finally, the banks. They love credit cards, as they make a fortune out of them. Indeed, during the credit crunch, the banks have made up for losses on their dodgy investments and loan decisions by hiking the charges to the ordinary credit card holder. The little people are paying for the mistakes of the bankers. But we don't owe the banks a thing. Switch back to a cash society - as the bankers profits shrink, the real economy will profit.

Learn more about this author, Lily S.
Click here to send this author comments or questions.