Has technology finally emptied your wallet?

Cash is slowly losing favour as UK consumers' favoured method of payment - could technology kill it off completely?

Sheri Markose, director of the Centre of Computational Finance and Economic Agents (CCFEA) at the University of Essex, said: "There are many stories about the demise of cash in the face of electronic payments" with ecommerce in particular helping to drive consumers to virtual cash substitutes.

She added that the choice for consumers to use cash or an electronic alternative is increasingly being taken out of their hands by ecommerce sites, where cash transactions are not permitted. "Post-2000 ecommerce and online card use may work as a factor to break the stability of cash use," Markose said. "As online transactions come to the forefront, cash use will decline."

Estimates put the percentage of sales made with cash at around 44 per cent today. It's predicted that could drop to 20 per cent within five years, thanks to online shopping and, to a lesser extent, other cashless payment systems, including near field communications (NFC) and m-commerce.

Mobile firms Nokia and DoCoMo have both invested in the concept of NFC or RFID payments, as have financial institutions including MasterCard. However, the concept of e-cash has yet to take off.

Speaking at the Consult Hyperion Digital Money Forum in London today, Monika Hartmann of the European Central Bank's e-money observatory said that 0.1 per cent of cash in circulation in January 2005 is electronic. "It cannot be called such a big success," she said.

According Hartmann, e-cash can't take off until providers crack the issue of how an individual could repay the fiver he borrowed from a friend without having cash: "We have observed at European level that e-purses proved more successful in some countries than others - Belgium, Netherlands, Luxembourg.... There's a lot of person-to-person schemes coming up. If we had more peer-to-peer capability, it would be thrilling."

Dave Birch, director of Consult Hyperion, believes that the advent of e-money will be a matter of time and lays the change squarely at the door of radio frequency identification.

"RFID is the technology that changed all of that - consumers and merchants like it and that makes all the difference," he said.

Murdo Munro, VP of mobile and wireless at MasterCard, said the company is actively trying to eradicate cash payments. "What we have at the moment is the mantra 'war on cash'." He added that the company is trying to take its products into areas where RFID can be used in place of 'real' money and using contactless technology to lower the margin of entry for cash-based merchants to accept electronic payments.

However, should e-purses spread interoperability could become a problem - would an Oyster card interact with McDonalds' MasterCard PayPass system? Charles Monheim, director of Oyster card, doesn't believe it's the main issue holding up the spread of e-money - success, rather, depends on consumers feeling comfortable with the technology.

"I don't think it's the end of the world if there's a different scheme in Manchester, different scheme in London, different scheme in Scotland - they'll all come together sooner or later," he said. "Once consumers are comfortable with it, you can change the cards out from under them and as long as there's no loss in capability."

For the moment, however, contactless payments are looking like the exception rather than the norm. The CCFEA's Markose believes the death of cash won't be caused by the virtual wallet for some considerable time.

"At the moment, there is no threat from the e-purse; that is clear... You have to go through the whole process of changing users' expectations," she said. "That will take time."