Going cashless!

If that promised day of the cashless society doesn't arrive tomorrow, it won't be for a lack of effort by the folks at Paybytouch. This San Francisco company has devised an electronic payment system that allows consumers to plug credit-card, debit-card, and checking account data into a central computer. Then they shop. When they scoot through the checkout of a participating merchant, they press their finger to an optical scanner that identifies them. There's no plastic card, no paper to sign. All they do is choose how to pay for those goods.

And note this: If the merchandise is put on a credit card, for instance, the consumer can pay it off by transferring money from a bank account that very well could have gotten all its value from an automatic payroll deposit. Nowhere in this chain of transactions has a greenback entered the picture - or a check.

Last year, for the first time, debit and credit transactions overtook cash and check purchases at stores, according to a report by the American Bankers Association (ABA) and Dove Consulting. And the surge in cashless transactions shows no signs of slowing. Lured by the convenience, security, and tracking ability of cards, people are turning to them in droves, especially debit cards. Even excluding withdrawals from automated teller machines, debit cards generated more transactions last year than credit cards. By 2007, debit purchases could exceed $1 trillion, according to The Nilson Report, an industry newsletter. And other innovations in electronic payments are coming.

For example, some firms now use stored-value cards - similar to prepaid telephone cards - to pay their workers. The reason: It's cheaper and more convenient, says Dan Grotto, senior vice president at West Suburban Bank, in Lombard, Ill. Some of his client employers have slashed the cost of issuing a paycheck from more than $2 to 20 cents by using the cards. And the employees, some of them low-wage earners without bank accounts, get a card that is more secure than a check. The cards can be used buy merchandise or get cash from a merchant, or from an ATM.

Mr. Grotto says his Chicago area bank's payroll cards even lets workers transfer money to relatives in foreign countries. The fee, he says, is less than those charged by traditional money- forwarding services.

This move to plastic - among consumers as well as workers - has boosted the use of debit cards significantly in three short years. The ABA-Dove study found that debit-card transactions in stores accounted for 31 percent of purchases last year, compared with 21 percent in 2000.

Still, America's not ready to go completely cashless. For one thing, biometric fingerprint readers and globally enabled payroll cards raise social concerns. For example, all the information on payroll payments and buying habits flowing through the ether makes it difficult to preserve an individual's privacy, says Diane Swanson, a management professor at Kansas State University in Manhattan, Kan.

And while electronic money management may be more convenient, she wonders about the sociological impact that nanosecond business transactions could have on communication among people. "There's a trade-off between the impersonal and the convenience ... between convenience and personal communications," says Dr. Swanson.

There are practical drawbacks, too. Grotto says that when he first explained to a group of mostly foreign-born bank employees that they would be paid by a stored-value card that they could use at ATMs, he got a lot of blank stares. "If a payroll card is going to work you need to do education," says Grotto.

That education could start with a primer on the ins and outs of ATM fees, says Gail Siegel, executive director of the Coalition for Consumer Rights, in Chicago.

While people can cash a paycheck at a currency exchange for a fee that is proportional to the transaction, ATM withdrawals carry fees that can total $3 or more. This could be especially hard on low-wage earners who are withdrawing small sums. "Anything that restricts the consumer's actions in the marketplace, such as limiting them to electronic access to their money, is not empowering them," says Ms. Siegel.

In Iowa, the state has issued US Bank debit cards to 55,000 parents who receive court- ordered child-support payments and haven't signed up for automatic bank deposit. The value of the child support is electronically loaded onto the card and recipients get at it by buying something or getting cash back at a merchant that accepts debit cards. While overall response has been favorable, one woman complained that she has always used her child-support payments to pay for day care, but the provider doesn't accept debit cards.

Debit cards also lack a couple of features that make credit cards so popular. First, a credit card lets people buy when they don't have the cash, and pay back the money in installments. And credit-card companies have built up a huge business tying cards to award programs that build up points for airline trips, automobile purchase discounts, or even donations to charities.

If something has got to go by the wayside, it could well be checks, says David Robertson, publisher of The Nilson Report, a newsletter about financial transactions. Checks are slow to process, both at the checkout line and by banks, and easily replaced by faster, more efficient methods.

"There will always be cash," Mr. Robertson adds. It has an advantage over all the others - anonymity. Sometimes people don't want a record kept of their purchases, he says, and in this case, the greenback is king.