The cash machine of the future

Your phone will do everything you can do on an ATM right now, because you won't need cash...

Interesting that notes in circulation are still rising though (and this is not just because of quantative easing). I do aknowledge the excitement amongst the iPad carrying classes that NFC enabled smart phones will make it obsolete but the same was said about Mondex. There will always be demand for a universally accepted, non auditable real-time payment method that earns governments $zillions every year. So please, don't write off the cash and dash machines just yet.

Brett - totally agree, but I think the mainstream will still want something physical to provide a sense of security for some time yet. Like Keith says I agree that the wholesale shift away from cash will be a long time coming. 

While a niche segment of customers might prefer mobile payments for whatever reason, cash and checks can't be beaten for their sheer convenience among the mainstream. Once the novelty wears out, convenience will trump. According to a recent article from the TIME magazine, INGDirect USA decided to bow down to customer pressure and offer checkbooks for their - yes - online checking account holders. It's quite telling to hear ING's head of product strategy say in this article, “It’s not something that our customers want; it’s really something they need". With this move, ING hopes to "draw more customers who are ambivalent about a traditional banking relationship but don’t want to give up any conveniences".

http://moneyland.time.com/2011/08/15/online-banking-customers-demand-paper-checks/

Before we start writing off the omnipresent ATM, it is important to understand two aspects - i.) what's the primary function of an ATM which cannot be provided by any other banking channel and ii.) what's happening to cash as a mode of payment

The first is simple - the main function of an ATM is 'cash and dash' - providing a fast, convenient, easily available, secure channel to withdraw cash. The second, contrary to popular belief, is that cash in circulation is increasing - both absolutely and as compared to % of GDP increase. US and Eurozone, two biggest economies, have shown cash circulation to the tune of circa 9b USD and 8bn euro in 2010, more than double/ four times at the beginning of millenium. Even as a relative measure (% growth compared to GDP or as a % of money in circulation, its rising). True, inflation is leading to an increase in denomination (and hence value) and debit cards are slowly catching up, but end of cash is nowhere in sight.

With these two aspects, its unlikely the core function of an ATM will ever disappear. Of course, Branch ATMs may add more features (cheque/cash deposit) to increasingly drive away teller queues; but off-site ATMs are increasingly becoming leaner. This is also compounded by a key factor - privacy -anyone would want to spend as little time as possible on an ATM surrounded by hoards of people on a busy street (some who may be shoulder surfing).

The innovation in ATMs will be on two areas - i.) access, by allowing faster, secure, contactless access throguh smart-phones or biometrics ii) security - fraud prevention as fraudsters become increasingly enterprising.

Yes, it's true that cash "in circulation" is increasing. In fact, it's increasing as a share of GDP even while it is decreasing as a share of retail payments. This can only mean one thing: cash is being use primarily (and I do mean primarily - ie, more than 50%) for illegal purposes such as tax evasion, corruption, drug dealing and so on.

We should be reducing the number of ATMs year on year, raising the cost of withdrawals and penalising cash deposits. The will reduce bank (and everyone else's) costs. In return, banks that offer current accounts should be requried to provide free debit card services to customers with a zero interchange fee.

The very fact that sanctions screening is mandatory for most cross-border electronic fund transfers indicates money is used for illegal purposes even in non-cash form.

One perfectly legal use of cash that explains the disproportionate growth in the use of cash is the rise in the number of unbanked people who are entering the workforce and earning wages but not yet becoming banked. For example, in India, the government's rural employment scheme called NREGA has helped a lot of people in the rural areas earn money. NREGA seems to have spread much faster than the rural push of banks since many NREGA beneficiaries continue to remain unbanked.

Another point worth noting is payments made to plumbers, electricians and other handymen. They typically happen by cash but I'm not sure if they get reported as part of retail payments. In India, even fees to general physicians are often made in cash. All these are perfectly legal uses of cash and a growing middle class leads to disproportionate growth in use of cash. 

I have a comment for Mr. Birch - what utter tosh.