The Growing Perils of the Cashless Future
The Growing Perils of the Cashless Future
Michael Kling
Wednesday, 23 Apr 2014 | 10:26 AM ET
Fiscal Times for CNBC.com
CNBC's Kelli Grant talks about the types of protection
available to credit and debit card holders in the transition to a cashless
society.
We're finally on the brink of the cashless society that
futurists and other have been forecasting for years. The average consumer owns
at least two credit cards and early adopters have begun ditching plastic for
virtual wallets. Even businesses that used to rely heavily on cash — think
taxis, food trucks or even craft fairs — can now go cashless, thanks to new
technology like Square.
Yet, the more we abandon paper bills for plastic,
smartphone payments and even cryptocurrencies like Bitcoin, the perils of the
new, cashless economy are becoming more apparent. Recent security breaches at
Target, Neiman Marcus and other retailers illustrate the vulnerability of
electronic payments to hacking attacks.
There were 2,164 reported security incidents exposing 822
million records last year, nearly doubling the previous highest year, 2011,
according to Risk Based Security, a data security firm. The pace seems to be
continuing this year.
Chip-and-pin cards, in use in Europe for years, would
remove some of the threat. Computer chips embedded on the cards verify unique
personal identification numbers consumers punch into terminals. The cards would
help reduce fraud, but it's not clear how much. For instance, they don't help
prevent online fraud. The problem is cost. Making the cards and installing the
new terminals needed to read them is expensive. Consumer advocates want
Congress to press retailers and banks for fast adoption of chip-and-pin
technology.
"Some institutions in the U.S. say they will switch
to this technology in the next few years, but we need a stronger commitment
from all stakeholders," stated Delara Derakhshani, policy counsel for
Consumers Union, in testimony to Congress. "Policymakers must also take
action to encourage investments in technology to tighten up the security of our
financial institutions."
Data breaches aren't the only downside. Going cashless in
a world of Big Data means all your purchases — and therefore your privacy — is
up for grabs. Did you hear the one about the woman who wanted to surprise her
husband and tell him that after three years of trying, she was finally
pregnant? Too late. While on line one night on their home computer, he noticed
all these products geared to pregnancy and childbirth.
Barry Silbert, Founder & CEO of SecondMarket,
explains the firm's decision to launch a bitcoin investment trust.
Of course, it's not just companies that want to make a
buck. A recent episode of "The Good Wife" showed how a fictional (we
hope) NSA might operate. The agency had been listening to the "good
wife's" phone conversations at the office as well as her estranged
husband, the governor. Therefore, the governor had an aide post a "for
sale" notice at a local mosque for an incredible deal on a pre-owned car —
the number to call was that of the local head of the NSA. Dozens of men with
Arabic names called the man at his office, and he was fired.
Privacy experts suspect that if the NSA is capable of
recording information about people's phone calls, it is certainly monitoring
electronic purchases. "That is a civil liberties concern," says Scott
Shay, chairman of Signature Bank. "When governments have information they
are sometimes tempted to use it, and sometimes they attempt to use it in ways
that are not fully vetted by due process."
Since electronic payments can be traced, authorities may
be able to curtail or even eliminate crime, including everything from
prostitution to terrorism. But constant government monitoring could turn
everyone into a potential suspect, creating distrust between government and
citizens that could lead to "vast consequences," economist Domagoj
Sajter of the University of Osijek in Croatia wrote in a research paper
published in March 2013 titled "Privacy, Identity, and the Perils of the
Cashless Society."
Individuals and organizations may be unwilling to promote
unpopular or unconventional ideas if they know their transactions are being
monitored. "Ultimately, this would lead to a weaker form of democracy, in
which certain voices could not be heard and lobbied for."
It is possible that the government could monitor
electronic purchases in an attempt to police crime, says David Stearns, a
historian and sociologist specializing in electronic payments at the University
of Washington. From a technological standpoint, the feat would be relatively
easy. But whether it will happen remains uncertain, he says.
Even it does happen, criminals would simply use a
different currency, be it digital or physical, he added. For instance, in times
of hyperinflation in the past, people bartered with cigarettes. "The idea
that it will eliminate all fraud and crime is a little optimistic."
Stearns sees a cash-limited society as far more likely
than a cashless society.
"There are a number of cultural rites that we use
cash for today," he says, citing small donations, tips, religious
contributions, and gifts. "It's a lot more meaningful for grandma to send
a crisp $20 bill than a piece of plastic. If we went to a cashless society,
that's what we'd have to figure out."
—By Michael Kling of The Fiscal Times
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