There are often wild predictions of things disappearing that never do. Like paper. Many would claim that the idea of the paperless office is about as realistic as a paperless toilet. Yet, the Japanese do have just such a device for your derriere and digital pen and paper is making strong inroads into the traditional usage of pen and paper.

Therefore, the idea of a cashless society is also tenable. However, it can be misconstrued. For example, one journal recently quoted me as saying the ATM was dead. This caused some consternation amongst my friends at NCR and Diebold who are dedicated to making that business successful. What I actually said is that the ATM in its traditional form is dead. The traditional ATM was just a cash machine and the reason why that will not survive is that cash is being targeted for extinction, with a specific focus from contactless payments.

Cash, as in coins and notes, is passé in the world of wireless and digital life. That is why cash will be displaced by other forms of payments, specifically contactless payments.

Contactless payment cards, such as the Oyster Card in London, MasterCard PayPass and JPMorgan’s blink in the USA, and E.Sun Bank’s mixed credit and contactless payment card in Taiwan, are springing up everywhere around the world and taking off rapidly.

One of the most ambitious contactless payment programmes is JPMorgan’s US rollout of the ‘Blink’ card. In technology trials, JPMorgan found that the typical card user’s

• speed of paying improved by 15% to 20%
• number of payments increased by an average 12%
• amount spent increased by 20% to 30%

compared to cash payments. This is why JPMorgan is aiming to issue over 100 million such cards to US consumers over the next few years. Contactless payments are fast and easy, convenient and cheap; they also get rid of cash.

Going onto the London Underground used to involve heaving around mounds of coins in your pocket or purse if you did not want to queue for hours to change a note. Now, thanks to the Oyster Card, blink and you have paid. The same is true in Hong Kong with the Octopus Card or Tokyo with the Suica Card. And all sorts of other destinations for contactless payments are popping up overnight. For example, McDonald’s now takes contactless payments across all of its US stores and Bossini in Hong Kong accepts the Octopus Card for buying clothes.

Then you have the big three – MasterCard, Visa and Amex - each with massive contactless payments deployments. All three are making rapid inroads by partnering with cash-friendly franchises - cinemas, 7-Eleven convenience stores, gas stations, fast-food outlets etc.

If contactless payments grow such that you can pay for all of the things you currently buy with notes and coins, then why do you need cash at all? If you do not need cash, why do you need cash machines? If you do not need cash machines, then what is the ATM for?

The ATM has to find a new role in life. That might be depositing cheques, accepting payments, paying bills, offering advertising, dispensing tickets, topping up contactless payment devices or even downloading bank statements to PDAs...but it won’t be dispensing cash.

The question is when contactless takes over from cash. After all, the UK payments associations Apacs found that it was only last year that plastic payments overtook cash payments, so the erosion of cash must be several years away from now.

The real answer though is totally dependent upon the attitude of each nation towards money. The Irish have recently seen a massive upsurge in ATM deployment as banks see access to cash on every street corner as a differentiation. But then the Irish nation has one of the highest usages of cash in any European nation, and more than four times the amount of cash in circulation and usage as compared to the UK or Finland. Meanwhile, Finland has almost all payments made electronically and abhors cheques or non-electronic forms of payments.

And this is a key point. You have to track the experiments that are working around the world of payments and then identify and deploy the ones that make sense for your business in your markets. You cannot expect that the familiar notes and coins will disappear overnight. The erosion of cash by other forms of online, mobile and contactless payment will take decades rather than years. Although it may be sooner than we think for some.

For example, in 2002, I walked into a major high street store in the UK and asked for an MP3 player and the assistant said they had stopped stocking them as "who would want download music off the Internet?" By 2005, the same store was the biggest seller of iPods and you would now be hard-pressed to find a CD-player, radio or cassette tape anywhere in sight in the same shop.

That is another point. For each new technology innovation, something has to become obsolete or what is the point? If you buy an iPod, do you still want a cassette or CD-Walkman? If you have a laptop with DVD in your teenager’s room, do you still buy them a TV and DVD player? If you buy a mobile telephone with three megapixel camera, do you still use your 35mm or digital camera?

These technology innovations are easy to accept in our personal lives, and it is the reason why each wave of change that moves cash to credit card, cash to debit card, cash to contactless card, cash to online, cash to mobile, erodes the dominance of cash. And those waves are getting faster.

For example, Asia is a hive of innovation in payments including credit cards where you can choose by transaction how it is paid – either via prepay, debit, credit – at the point of payment using the same card. You can even choose which currency to pay in. But it is mobile commerce, in particular, which has taken off in the region at a phenomenal pace. For example, Hong Leong Bank in Malaysia has recently introduced a new form of payment with Mobile Money, issuing a 'mobile credit card' that uses SMS text messaging to pay without touching the MasterCard, Visa or Amex systems.

The best example of mobile payments in Asia still has to be NTT DoCoMo’s Edy mobile wallet. Edy is a mobile payment system integrated into a contactless chip on DoCoMo’s mobile telephones which are manufactured by Sony. The phones are accepted as payment in over 31,000 outlets, including shops, convenience stores, restaurants, and even – as of April 2006 – by the taxi drivers in Tokyo. As a further demonstration of the increasing domination of mobile payments in Japan, the same FeliCa telephones can now be used to make Suica payments. Suica is a contactless scheme similar to Oyster and Octopus for Japanese Railways East Japan, JR East. The significance of having both Edy and Suica on your telephone in one, is like having your MasterCard and Transport Card on your mobile handset. It just makes life simple.

As you combine the ideas of JPMorgan’s Blink card in the USA, DoCoMo’s Edy mobile wallet and others, a bigger picture emerges. That picture is one of a world where banks are experimenting with many different forms of payment which, if combined, could easily erode the traditional forms of payment. But, right now, the ‘Big Picture’ is that cash is being targeted in more and more ways as a redundant and archaic form of payment. After all, who wants to carry pennies in their pockets when they can have their payments on their mobile?

Chris Skinner is a director of TowerGroup and founder of Balatro.
Web links: www.towergroup.com and www.balatroltd.com
Author's email: Chris Skinner