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James Lyne: director of technology strategy at Sophos

How much money do you have in your wallet right now? For more and more of us, the answer is none.

Cash, as it turns out, has some downsides: it can be easily counterfeited, often carries germs, and even transports traces of cocaine. Plus, there are a lot of purchases you simply can’t make with cash today, from downloading a song to buying a plane ticket — and the transition from paper dollars to plastic and apps isn’t likely to subside.

The Cost of Cash

What’s so beneficial about not having cash in your wallet? First, there’s the cost of minting money. Making a penny actually costs the government 2.5 cents. Author David Wolman also notes that many businesses and school campuses want to avoid “cash maintenance” — the security cameras and inspections required by having excess money on hand.

Not all businesses favor plastic over paper, however. Think about your local cash-only diner or the gas station that charges patrons a lower price for using a $20 than for swiping a Visa. These businesses choose cash because they resent the fees credit card companies charge for each customer swipe at the register — and they may also choose cash for its discretion.

“For certain businesses, they prefer cash because they don’t necessarily have to report it,” Tufts' Bhaskar Chakravorti points out.  “I don’t want to cast aspersions on small or medium businesses, but there are many that have a different record on the books relative to what they take in at the cash register.”

But the larger a business is, the higher the cost of cash maintenance becomes — and the more beneficial it is for the company to stomach credit card fees and encourage electronic payments.

The Pain of Spending

But despite cash’s high cost and inconvenience, people have an emotional attachment to the dollar bill.

“Part of this is a left brain thing and part of this is a right brain thing,” Chakravorti says. “There’s a sense of security — if I hold half cash in my wallet, I feel secure in certain ways.”

And, for some groups, the sense of security cash brings is more than a mind trick — many with debt report that they spend more carefully when they spend with cash, a psychological phenomenon called “pain in spending.”

For now, paying with a $20 bill forces the spender to acknowledge the money they are parting with in a way that using a credit card does not.  But Wolman hopes to use technology to create more “pain” when consumers spend money digitally.

“What could be some new digital tools that we could use to hack around our bias for money in physical form?” Wolman asks. “People have sent me an app design, for example, where you watch bills floating away on the screen of your mobile phone as you pay for something. What if the bills were on fire?”

Ditch Cash, Ditch Security?

Pain of spending isn't the only reason consumers hold on to their cash — many are also wary that digital payments can't protect their information.

When James Lyne, an executive at the computer security firm Sophos, ran a survey of individual and business wireless networks, he found that nearly a third of the networks reviewed were taking substandard security precautions, and 19 percent were using a wireless network known to be susceptible to hackers. Lyne believes that if companies and individuals took measures to tighten security, online transactions could be painless. Unfortunately, he says, we don’t protect ourselves sufficiently.

“If we’ve learned anything from the likes of social media — Twitter, Facebook, and so on, it’s that unfortunately those best practices don’t always get followed, and that does indeed leave opportunity for cyber criminals to jump in and steal people’s details,” Lyne says.  

But Wolman doesn’t think the security risks that accompany mobile payments are prohibitive. What’s lagging behind isn’t the security, he believes, but rather public comfort.

“This is kind of our legacy when it comes to technology,” Wolman argues. “People once thought that having radios in automobiles was going to bring about the end of the world. Gradually we start to get used to this stuff, especially as the younger generation starts to use them and reveal to us that, lo and behold, the world can keep spinning if you buy a coffee with a mobile app.”