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After Check 21, Is It Time for Cash 21?

Wells Fargo considers the end of cash as we know it.

Eighty-seven percent of transactions in the United States involve the use of cash and coins, according to Mitch Christensen, executive vice president of Wells Fargo Services Company, the support organization for the Wells Fargo Corporation (San Francisco, $349 billion in assets).

Although the demise of cash has been a staple of the punditry since the introduction of the credit card, the tipping point may come sooner than most people think. In fact, the prospect has already appeared on Wells Fargo's radar.

Christensen manages a payments strategies group that brings together executive strategists from the retail, wholesale and consumer finance divisions of Wells Fargo. "We look about 18 months to 36 months out," says Christensen. "And at about that 18-month position, those strategies get handed off to the product groups for more tactical implementation, product development activities and so on."

Looking ahead to 2007, several factors may contribute to a decline in cash utilization: low-cost technology, consumer adoption trends, the changing economics of cash transportation and perhaps even a regulatory push, Christensen suggests.

"There are several technologies on the market today, none of which so far has gotten to where they need to get," says Christensen. But as RFID (radio frequency ID) and wireless IC (integrated circuit) chips find applications in the supply chains of other businesses, the economics may be ripe for broader deployment of those technologies in the consumer payments market.

If prices for payment-enabled key fobs and contactless smart cards follow the downward path of other mass-produced electronic devices, the low-priced electronics may attract the interest of major merchants such as Wal-Mart and Sears. "Once a couple of significant retail players make the move, people will not want to carry cash anymore," says Christensen. "And if they do carry it, it will be much smaller amounts than what they carry today - because they just won't need it."

Furthermore, younger consumers, who have grown up collecting MP3s rather than wheat pennies, tend to have a high comfort level with going digital for all of their needs. "As the next generation comes online in the next three to seven years, we're seeing a real propensity for those folks to use not only less checks but less cash," says Christensen.

But the real kicker might come when merchants and banks begin to see the expenses involved with cash handling rise - as a result of check truncation at the point of sale. Part of the anticipated benefit of check truncation comes from eliminating or reducing courier costs, both from the retailer to the bank and from the bank to its check processing centers. But if retailers still have to maintain cash reserves and make drop-offs every night, the line-item cost of cash handling may become increasingly visible to both banks and their customers. In turn, both parties might find it worthwhile to provide greater incentives for non-cash usage.

"If we're really going to take significant steps toward electronifying our channels, we're going to have to induce consumers to use the channels that are the most efficient, the most safe and the most effective," asserts Christensen.

A final push may come from government efforts to stamp out anonymity in payments. If cashless payments become the norm, "all you're going to have left are the people who don't want to have anyone know that they're doing a transaction," explains Christensen. "I think Congress and many constituents within the United States' legal structure are going to be fascinated by the opportunity to drive a lot of cash utilization out of the environment."

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