Cash is dead… In the next five years, nearly everyone will prefer paying with their phone.
“It’s time to kill the $100 bill,” former U.S. Treasury Secretary Lawrence Summers wrote in the Washington Post a year ago.
Harvard economist Kenneth Rogoff took it a step farther… In his new book, The Curse of Cash, he argues for the elimination of the $50 bill… and even the $20 bill.
These modern legends of money want to kill your cash… They want us to live in an essentially “cashless” society.
It sounds preposterous here in America in 2017… Cash is a part of our everyday lives. “Cash” is synonymous with “money,” and it has been since we were born.
But whether you like it or not, a cashless society is coming. It will be here much sooner than you think. And that means a monumental shift in the way we spend money…
It will be the greatest transformation of how people pay for stuff since, well, since people started paying for stuff.
In less than five years, money as you know it will have completely changed…
In less than five years, your kids won’t carry wallets. They won’t carry cash. They won’t carry credit cards.
In place of all of this, they will carry just one thing: their mobile phones.
It won’t just be your kids, by the way…
In less than five years, you will use your phone to pay for almost everything.
This sounds preposterous, I realize… It’s crazy to even consider when NOBODY here does this – yet.
But it’s coming. Without a doubt. We have to get out ahead of it…
Surprisingly, nobody’s talking about this shift, which is exactly what I want to see as an investor… It’s an unstoppable trend… that nobody is talking about.
This is an enormous opportunity. And if you’re like me, three questions immediately come to mind:
1. Why do these people want to get rid of our dollar bills?
2. What does a “cashless” society look like? And
3. Who will be the winners and losers in this trend? And how do we get out ahead of it and profit from it?
I’ll answer all three of these questions in this article. First, let’s cover questions one and two. We need to understand why the financial “elites” are trying to kill cash… and how a cashless society would even function.
Why Do They Want to Get Rid of Our Dollar Bills?
What’s happening today is an inevitable shift… away from traditional paper money and towards mobile payments and a cashless society.
It’s happening whether you’re on board or not.
Now, the financial elites like Summers and Rogoff agree on why we should do away with bigger bills…
They say that criminals use large bills for all kinds of illicit activities, from selling drugs to paying for terrorism and corruption.
A standard briefcase holds around $2 million in $100 bills… The same briefcase filled with $20 bills holds 80% less. The argument is that removing larger bills would reduce criminals’ ability to move large amounts of money.
But the truth is, those activities will happen with or without hundred-dollar bills. Heck, bitcoin already has a reputation as a way for criminals to anonymously sell their goods and services online.
The scary part here is that getting rid of big bills and moving to a cashless society would give the government unprecedented access to your personal affairs.
If you pay for everything electronically, then Big Brother can see everything you’ve done. They might not have immediate access to the data… But if they want it, it’s there. Without cash, both the government and big data-collection companies can virtually track your every financial move.
Surprisingly, no one under the age of 30 seems to care about this…
They use their phones for everything… from getting around with Uber, to buying music, to getting their caffeine fix at Starbucks. And their entire financial life is moving more and more to their phones. They can do their banking, investing, and paying for services with just an iPhone.
As Harvard’s Rogoff explained it…
A lot of my kids’ friends don’t even carry cash around. My son worked at Starbucks a summer ago, and I went in… I paid in cash, and my son said, ‘Dad, you’re the only person who has paid me in cash today.’ He might have been joking a little, but not much.
Apparently, the ability to skip the line at Starbucks because you’ve already paid for your coffee on your mobile phone is more important than worrying about Big Brother.
And that’s just it… Cashless payments are EASY. You can order and pay for your Starbucks coffee from your phone before you go in the store with just a couple taps.
Think about this for a minute…
Imagine that you and I had the task of coming up with a new money system, starting from scratch… We’re given a team of the planet’s brightest minds to help us come up with this new money system.
Do you think our solution would be bills and coins? Of course not.
Coins are clunky and heavy. Paper money is easily stolen or lost. It’s hard to store either one in large quantities.
Cash as we know it exists for an obvious reason… because it’s what’s been around for centuries. And because there’s never been a better alternative.
It might seem hard to imagine what a cashless society would look like. Could it really work?
Yes, it can. In fact, it’s already working.
We already have a shining example of what a cashless society looks like – and how it works – in Sweden.
What a Cashless Society Looks Like
Can you imagine your America… without cash? Would people in a civilized society even go for this?
Yes, they will. In fact, they already have. Sweden is a great example…
Nobody uses cash in Sweden these days – cash made up just 2% of the value of all payments in Sweden in 2015, according to Sweden’s central bank. And the Swedish central bank is actually considering issuing a government-backed digital currency – soon.
It’s hard to imagine what “no cash” really means. So, let me give an example of what it looks like today in Sweden: Over half of the country’s bank branches no longer keep cash on hand, or take cash deposits. And many bank branches – especially in rural areas – no longer have ATMs! Can you believe it?
“I don’t use cash anymore, for anything,” 26-year-old Swede Louise Henriksson told the Guardian newspaper. “You just don’t need it. Shops don’t want it; lots of banks don’t even have it. Even for a candy bar or a paper, you use a card or phone.”
She’s not kidding, shops really don’t want it, and they can legally refuse to accept bills.
It’s easy to understand not using cash at a store… but what about for other things?
“Swish [a free Swedish phone app used to transfer money] has pretty much killed cash for most people, as far as person-to-person payments are concerned,” says Niklas Arvidsson, an associate professor at Stockholm’s Royal Institute of Technology. “It has the same features as a cash payment… the same as handing over a banknote.”
Swish is instant, it’s free of charge, and you only need someone’s phone number to transfer money to them. And it’s used by ninety percent of adults under 30.
(FYI, Sweden had its first Swish mugging a few summers ago… Two thugs beat up a man and forced him to “swish” them some money. Police easily identified the assailants by their phone numbers.)
We wish we could invest in Swish… but Swish is not publicly traded. It’s owned by the Swedish banks. It’s for Scandinavian use only (hey, Sjuggerud is Scandinavian!).
Importantly, Swish is not much different from services we have in the U.S. – like Venmo, PayPal, or Google Wallet. They do the same things. They allow you to pay just about anyone… without cash.
You can do all of this with your phone. The revolution in mobile payments is absolutely incredible.
What most folks don’t realize is how easy and safe these services are to use. But that’s exactly why they’re the places we want to put money to work right now…
Mobile Payments Aren’t as Crazy as You Think
“Steve, paying on your mobile phone sounds ridiculous,” you might think… “It couldn’t possibly be safe or secure.”
This is the one most people get wrong… Paying with your phone is actually safer because you avoid the current problem of revealing your name or credit-card number to whomever you are paying.
(The secret is called “tokenization.” When you pay with your phone, a one-time-use number – a “token” – is all that’s created. Your name and credit card number are never seen, and therefore, they can’t be stolen.)
Every time you swipe your credit card, or type it in online, you risk getting hacked… You give up your name and your credit-card number. But not when you pay with your phone.
Paying with your phone is more convenient, too… It’s faster than fumbling for cash or waiting on that stupid credit-card chip approval.
This will take off. The traditional credit card is done for.
I don’t mean completely gone, of course. Here’s what I mean…
In about five years, I believe, nearly everyone will prefer paying with their phone. I realize that’s hard to believe, when basically nobody in America is doing this now. But they will.
You might wonder what gives me such strong conviction that basically all of us will adopt this – and we will do it quickly. The answer is simple: My trip to China last summer proved it to me 100%.
It sounds crazy to say that I saw the future in China. But I did. The Chinese people are about three years ahead of us in adopting this technology. In China’s big cities, I saw two things:
1. Everyone prefers paying with their phone. They HATE using cash, and traditional credit cards are basically irrelevant.
2. For convenience, most people prefer staying within one “app,” or one “ecosystem.” (I will explain more about this idea in a minute.)
These are the two big ideas. This is what I expect will be true in America as well.
While we can’t know exactly how it will play out here in the U.S., we do have the luxury of a pretty good blueprint… It’s what’s happened in China over the past three years. The basics of what we’ll see are:
1. A quick transition to mobile payments, and
2. People staying with what’s “convenient” on their phones – that is, staying within one “ecosystem.”
Before I get too deep into that, let’s back up… What’s it like to pay with your phone instead of cash or a credit card?
Exactly What It’s Like to Pay With Your Phone
I paid for lunch at Panera Bread a few weeks back… with my phone.
Instead of pulling out a credit card or cash after I ordered, I simply swiped my phone over the credit-card reader. Boom. Done. That’s it.
It’s a bit anticlimactic, really…
There’s no “thrill” to it… You’re already holding your phone out… And then your phone says you paid, and the receipt appears on your screen. That’s it.
It’s quite unexciting. There’s no digging in your purse, no fumbling for cash and credit cards, no card swiping, no signing, and no fumbling to put everything away.
Instead… nothing happens. You hold your phone… and then… you’re done.
But what’s going on behind the scenes? This is where it gets good…
You see, the magnetic strip on your credit card carries your name, account number, and expiration date. When you swipe it at a store or restaurant, you relinquish that information over to the merchant. And that’s the problem… Now your data are out there, and hackers can get to them.
However, when you pay with your phone, nobody can see your name or your credit-card number… because they weren’t ever shown. That’s what makes this safer than pulling out your credit card… With “tokenization,” your name and your credit-card number never appear – therefore, this way they can’t be stolen.
I hope you’re coming around. I hope you realize that this change is coming. Because the next thing we need to do is find the top ways to profit.
Not surprisingly, the biggest winners will continue to win…
Who Are the Big Winners and Losers With Mobile Payments?
So… if everyone is going to switch to mobile payments and move away from cash and traditional credit cards, are the credit-card companies done for?
The reality is the opposite… The major credit-card companies are the only guaranteed winners in mobile payments…
You see, regardless of whether you’re using an Apple iPhone or an Android phone… regardless of which bank you use… Nearly all mobile payments are ultimately processed by the major credit-card company networks – particularly Visa and MasterCard.
Instead of losing “market share” as people move away from cash and traditional credit cards, the major credit-card companies will do the opposite… They will gain market share, as more payments will pass through their networks.
What about PayPal?
It was one of the innovators in new payment methods decades ago. And I don’t know about you, but I use PayPal all the time…
PayPal is just so much more convenient than paying with a credit card in many cases. You can often buy instantly (like on eBay) or with just a click or two.
Meanwhile, buying concert tickets with a credit card often takes five minutes, and you have to type all your personal information into yet another website. I would prefer not to do that.
PayPal is the leader in mobile payments in the U.S., by far. However, PayPal’s big risk is that it’s not part of an already existing “ecosystem.”
This ecosystem concept is incredibly powerful.
WeChat is the dominant ecosystem in China. People do EVERYTHING within WeChat. WeChat’s payment system didn’t really get going until 2013. And now it’s massive. It’s second to Alipay, but with more than 700 million loyal WeChat users, it’s gaining market share daily.
Here in the States, we don’t have a big winner like WeChat, yet… But the dominant players are obvious…
My kids practically live on Snapchat on their phones… It is their hub of communication. Likewise, Facebook is sort of the grown-ups’ version of Snapchat.
Apple has an incredibly powerful ecosystem, as well. My son switched to an Apple iPhone because all his buddies were using iMessage, and without an iPhone he couldn’t be a part of it.
For you and me, Apple and Android have ecosystems in place. And they are both so darn good at keeping you in their ecosystems. We pretty much have to pick teams – Apple or Android.
And as I learned in China, you can’t underestimate the power of creating these ecosystems that people don’t want to leave. We are already in them. We don’t want to start with something new. Therefore:
I expect that Apple Pay and Android Pay will become the dominant “mobile wallets” here in the U.S. – simply because our desire to keep everything simple trumps everything else.
I could be wrong of course… They’re not the only competitors.
Take Samsung Pay, for example…
Android Pay and Apple Pay only work on newer credit-card readers.
But Samsung Pay is different… It can be used on virtually all existing credit-card processors. In theory, you can even use it at the old gas station or corner store that hasn’t updated its card reader in decades.
How? Samsung Pay uses a technology that fakes like your phone has a magnetic strip. But that technology will be unnecessary soon, as stores are all upgrading their credit-card readers these days… And it only works on a couple Samsung phones. So you can see, Samsung Pay will never be dominant.
“Square” is cool, too – you may have visited a small retailer who has a Square reader sticking out of his iPhone. This little square device allows him to swipe a card and have his phone act like a traditional credit-card reader. It’s great for little businesses. But Square likely won’t take over the world.
But while I expect most people will gravitate to Apple Pay or Android Pay, Apple and Alphabet (owner of Google and Android) won’t get rich off of them… And we as investors won’t see big returns in those stocks because of mobile pay.
Instead, the big winners – ultimately – should be the big credit-card companies like Visa and MasterCard.
The big credit-card companies will still end up processing the majority of these mobile payments. And the growth in mobile payments has the potential to be enormous. Take a look at the chart to the right…
There is money to be made, and market share to be gained for Visa and MasterCard, as mobile payments in general grow.
And then there’s the infrastructure… Which companies make the new products that make all this mobile-payments stuff work? We will certainly have some big winners there.
I believe this will be one of the biggest stories of my investment career…
At a high level, it’s a rare situation. You see, mobile payments and a transition to a cashless society are an inevitable trend… but no one is paying attention. The rest of the investment crowd seems blind to this idea. But it’s coming. There’s nothing anyone can do to stop it.
We’ve featured Steve Sjuggerud’s work on the “Last Bull Market” and the “Melt Up” in recent American Consequences issues. This month, he brought us an important development in cash and the coming shift to mobile payments.
He recently detailed three specific ways to profit from this major trend for his readers… including one opportunity that is likely to become the world’s first trillion-dollar company. Click here for more details.