Congress prepares for a 'cashless society'

WASHINGTON (MCT) — When Abraham Lincoln allowed the Treasury to print money for the first time in the depths of the Civil War, it was a major innovation born of a pressing reality.

The Union was broke.

Now, 150 years later, in admittedly less dire circumstances, Congress is preparing itself for the next big thing when it comes to money — a future in which payments are made with a wandlike wave of a phone rather than the exchange of wrinkled pieces of paper.

"We are, I think, on a precipice of some fundamental change in the way money is exchanged between consumers and businesses," Rep. Shelley Moore Capito, R-W.Va., said as she opened the first of a string of hearings in March.

Federally backed paper money allowed the Union to keep fighting the war after the government had burned through its coin reserves and a massive loan from banks, and had been reduced to writing IOUs to pay soldiers.

The greenback government notes, initially conceived as an emergency measure, quickly gained acceptance, with soldiers seeing it as their patriotic duty to spend them.

But paper money is a 19th-century technology that has barely changed in 15 decades. Since the mid-1990s, cash has been in decline, according to a Federal Reserve estimate.

It now faces stiff competition not only from credit cards but also from smartphones that promise businesses a way to advertise to customers before they pay or to offer them coupons, sort of like printing a little ad next to George Washington's face or bumping up the value of a dollar bill to a dollar and 15 cents.

"The mobile device becomes a new marketing channel for merchants to use," said Randy Vanderhoof, executive director of the industry group the Smart Card Alliance.

The Federal Reserve found in March that 12 percent of cellphone users had already made a payment through their phones.

The same month, almost two-thirds of technology experts surveyed by the Pew Center on Internet and American Life said they expected mobile payments to eclipse cash and credit cards by 2020.

Last year, Google started Wallet, one of the most promising demonstrations of mobile money. It works by linking a phone to a credit card or a prepaid debit card.

To pay in a store, a customer passes his phone over a reader at the checkout, sending the information using a technology called near field communication, or NFC.

Google partnered with Sprint, and AT&T, T-Mobile and Verizon teamed up and planned to start their own NFC-based system called Isis this summer.

Apple and PayPal are expected to offer ways to pay by phone too.

Although the attention of the country's biggest tech and wireless companies signals a watershed moment for mobile payments, members of Congress and regulators grappled at the hearings with how to make sure the competing systems played nicely together.

Richard Oliver, a retired executive at the Federal Reserve Bank of Atlanta, advocated an "open mobile wallet" that could be stuffed with just as many credit cards, receipts and store cards as a real wallet.

Serious questions about security and privacy need to be answered. There are concerns that hackers could siphon off money without customers noticing.