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Page last updated at 15:39 GMT, Monday, 28 November 2011

Can customers go cold turkey on cash?

View of a wallet

Consumers will not need any form of wallet to go shopping by 2016, the online payment firm Paypal says. But it is not the UK or the US that is leading the march to empty their pockets, it is Turkey, not known for its early adoption of new technology.

The death of cash has been talked about for a while.

Claims were made by Visa a few years ago that the date would be 2012, which now seems unlikely. Now analyst firm Forrester, in a report paid for by Paypal, is the one wading in on the debate saying the tipping point is just five years away.

Near-field communication (NFC) on both mobile phones and in cards allows quick payments for smaller purchases by using a radio signal that activates when the chip is placed near a reader.

Market research company Allied Business Intelligence thinks that the watershed - or wallet-shed - moment will be even earlier, in 2014.

'Cash is king'

But so far at least, it has been slow to catch on.

HOW DOES NFC WORK?
VISA contactless transaction
Two devices with NFC chips are brought into close proximity to each other, within 4cm, and are then able to communicate with each other
The NFC chip - which is a form of radio frequency identification (RFID) - is an enabler, letting the data - your payment - move between devices
There also has to be a secure element to deter hackers, and an application that provides a user interface on the phone

"Cash is king. And that doesn't seem likely to change," believes Wincor Nixdorf, a company which helps banks and retailers process cash most efficiently.

It seems clear, no-one is quite ready for mobile payments and people prefer the tried and tested method of handing over cash.

Actually it is not that simple.

"Although we are far from becoming a 'cashless society', it's clear from our research that cash is no longer king," said Dan Wass, head of current accounts and contactless at Barclays, earlier this year.

The use of cash is both dead and growing - though cynics might point to the vested interests the companies have in their contrasting views.

Treasury figures both in the US and the UK show that the number of banknotes in circulation in both countries is increasing rather than contracting.

The Royal Mint in Great Britain has been making money since the 9th Century. And, perhaps because of this tradition, people have been slow to take up the technology.

The countries which most prominently use credit cards - the US, the UK and Canada - have been relatively slow to change their ways.

But one surprising country is amongst the leader in trialling the way forward for mobile payments - Turkey.

It is thought that it is entirely because that traditionally Turkey has not been the first to adopt new innovations that has made this trial more successful than elsewhere.

If a thief steals your card and uses it, you have a limited number of transactions you can do. It's a risk the bank is willing to take.
James Davlouros, Mastercard

"In the UK or Germany, banks have a very high penetration rate in terms of branches," says Duygu Tavan, of VRL Financial News.

Customers in Western Europe are used to traditional banking methods... in Turkey, because these steps have happened so quickly, customers didn't really need to get used to it."

There are not that many branches of banks outside Istanbul so, until very recently it has been a cash-based society.

ATMs are a fairly new concept. Not all cards work in all machines and the banking industry has been very fragmented.

In a country which is still classed as a "developing nation", no one system of electronic transfer has yet become established so new ideas have less of a problem getting accepted.

Another advantage it has is that the country has a relatively young population, willing to try new things who have not developed long-term habits which are notoriously difficult to change.

Turning cash into money

Over the last 20 years Turkey has developed a love affair with credit cards - shops are now awash with adverts for loyalty schemes encouraging customers to use specific cards for particular purchases.

And this is something that the payment companies are looking to capitalise on.

Mobile phone operator Turkcell is responsible for one of the success stories. Within four months of launching, 100,000 pre-paid cards registered on mobile phones were sold.

Christmas shoppers crowd in central London's Oxford Street
Online and high street shopping are slowly becoming more similar

They are used to buy goods from shops or for sending money and can be used without a bank account. Money can even be taken from ATMs.

Visa and Mastercard have have been conducting field trials in Turkey with NFC cards for a number of years.

Ironically, there is no money to made from cash transactions so making it as easy as possible to spend digital money is in a company's interest, taking small percentages of the cost of payment as a transaction fee and lowering the cost of processing physical money.

It is those smaller transactions, still predominantly in cash, that could be the biggest change.

"It's an area where as a business, as a financial industry, we're not really exposed to and that's a big market," says James Davlouros, of Mastercard Mobile Business.

Countries like Japan and Singapore have been using NFC for some time now and finally contactless payments making its way over to the West.

In the US, Google Wallet is hoping to be the one stop shop for all your payments whether it is online or offline.

But in Turkey, it is the mobile industry having to keep up with demand, with only a select number of handsets support the technology.

And this has led to manufacturers incorporating NFC into keyrings, dongles and even bespoke inserts into phones themselves.

a rail passenger's mobile phone displays a barcode representing a purchased ticket
Payments using a mobile phone have been around for a while

Over half of smartphones will support NFC by 2014, according to research by Taiwan's Digitimes, with Blackberry and Samsung leading the way.

Nokia is currently trialling a subway payment system in New York and most of the major mobile manufacturers and operating systems are rolling our support.

But, with its increasing popularity, how secure is the system of NFC?

After all, if someone steals your cash, at least you know how much has been lost. But if they steal your contactless card or phone, what is to stop a pickpocket from using it over and over again?

"If a thief steals your card and uses it, you have a limited number of transactions you can do," says Davlouros.

"It's a risk the bank is willing to take."

If Paypal is to believed, the rest of the world is only slightly behind Turkey. By 2016, it says, UK mobile retail sales will hit £2.5bn as just over 14 million adults regularly shop via their mobiles.

But with over 1.4 trillion euros (£1.2tn) spent using Visa debit cards last year alone, there is still a long way for the technology to go before the wallet is replaced by the phone.



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