This document discusses the potential transition to a cashless banking system using electronic fund transfers. Key points: 1) A proposed system would eliminate the need for checks, credit cards, and cash by using electronic bank ID cards and terminals connected to centralized computers to facilitate all financial transactions. 2) Payrolls could be directly deposited into bank accounts. Customers would preauthorize automatic payments for recurring bills. 3) A single bank ID card would verify customers' identities and grant access to their bank accounts and credit histories to enable purchases. Merchants could offer various financing options processed through the centralized system. 4) Electronic fund transfers could provide discounts for early bill payments that are optimized across customers' accounts based

1. THE COMING
CASHLESS S IETY
Implications and benefits of a pending system
DALE L. REISTAD
"Checkless" banking may replace our cur-
rent system as early as 1980. Innovations
now being seriously developed by the bank-
ing industry may eliminate the need for nu-
merous credit cards, checks-and, perhaps,
cash-and at the same time expand and sim-
plify customer services. Made possible by
the use of electronic impulses as the mes-
sage, the system would bring large-scale
changes in our everyday business transac-
tions. For example, one bank ID card would
provide identification, unlock the customer's
bank account, and serve also a~ the key to
his credit inquiry account at the local auto-
mated credit bureau. What are the new serv-
ices, their benefits and drawbacks, if any,
and what are the future implications?
I
t is extremely probable-in fact, it is nearly
inevitable-that the banking system, after
nearly a half-century of selling the advan-
tages of paper checks, will reverse itself and
develop a "checkless" system, in which
paper will give way to electronic pulses as
Mr. Reistad is deputy manager of The American
Bankers Association and director of its Department
of Automation. This contribution is based on a
speech given at the third annual meeting of the
ioint sessions of the Midwest Business Administra-
tion Association and Midwest Economics Associa-
tion.
the main method of storing and transmitting
financial data. I would like to consider the
effect that such a system will have on the
consumer and some of the many implications
the system will have for the future. I leave
for others, however, the discussion of the
economic implications of such a pervasive
change.
THE PROPOSED SYSTEM
A checkless, perhaps even a "cashless,"
society is now on the drawing boards of the
banking industry. In the simplest of terms,
such a system would mean that people will
write fewer and fewer checks and depend
less and less on cash in the process of trans-
ferring funds from their bank accounts to
the accounts of their debtors. Instead they
will employ terminals, communication links,
computers, and related technologies in a sys-
tem based on electronic fund transfers. The
advent of such a society does not suggest a
lessening in the number of transactions-it
may mean just the opposite-but it does
suggest a diminution of paper as the medium
and, in its place, the use of electronic im-
pulses as the message. A checkless society
further suggests that people will not have to
carry checks or currency in order to conduct
23
FALL, 1967

2. DALE L. ~.~STAD
24
business; they will instead be able to conduct
almost every kind of financial transaction by
the use of an identification card, which in
turn can activate either a cash-transferring
bank account mechanism or a consumer
credit inquiry system.
PAYROLL SERVICING
In this system of fewer or no checks, the
customer could, but would not necessarily,
have his pay credited to his account by his
employer on a regular monthly, weekly, or
even daily schedule. The employer in this
case would transmit the amounts to be cred-
ited to the bank in machine-usable form,
probably on magnetic tape or punched card,
or maybe even directly on-line from the em-
ployer's computer to the bank's computer.
Opinion Research Corporation statistics in-
dicate that, at present, only 4 per cent of the
public have their full payroll checks depos-
ited in their commercial banks, but as more
computers are installed, this approach is ex-
pected to become considerably more popu-
lar. In the future, an employer may be able
to transmit payroll data to a central bank
switching center, whereupon the data would
be transmitted on the bank leased-lines sys-
tem to any number of banks in which em-
ployees might keep individual accounts.
This master switching system would over-
come the major objection to similar payroll
plans of today: the requirement that a com-
pany employee must maintain an account in
one designated bank (even though such a
plan allows the employee to cash at least
one free check, presumably to permit him to
redeposit his pay in his own bank). Obvi-
ously, the more employers that participate
directly in this initial phase of a checkless
society, the greater the opportunity for the
banking industry to provide the rest of a
wide assortment of checkless banking serv-
ices. Perhaps this is why payroll servicing
ranks highest among computer services
offered by banks to their business customers
today.
THE m CARD
In a checkless banking system, the bank
customer will carry an identification card,
which will serve as the input, or "key," to a
wide variety of terminal devices and will in
turn be connected directly or indirectly to
a master bank computer switching system.
A series of punched holes in the card will
carry the telephone switching number of the
customer's bank, along with the customer's
account number and type of account.
Widespread use of the bank m card will
slowly eliminate the need for the credit card
as we know it today and may also serve as
the identification key in the credit inquiry
process. The credit card of today identifies
its holder and attests to a contractual ar-
rangement between the holder and the
credit card company for the financing of
receivables. The bank m card of the future
will also identify the holder, but it will do
so with a variety of verification techniques
not now in common use. These techniques
(under study by a number of major com-
panies) include the use of a "secret code"
or "secret word" in addition to the holder's
account number, fingerprints or thumb-
prints, voice identification, colored photo-
graphs, scrambled signature or thumbprints,
and many other methods, any one of which
is far more dependable than the signature
check.
When a customer presents an m card, he
will not be called upon for additional iden-
tification, such as a driver's license, but he
may be called upon for various levels of
sophisticated verification to match the var-
ious value levels of the transaction. For ex-
ample, a $5 purchase of gasoline might not
require verification at all, whereas the pur-
chase of a $500 diamond ring might require
the ultimate in verification-a thumbprint or
voice-response checking procedure.
The major difference between today's
credit card and tomorrow's bank m card,
however, is not in the identification proce-
dures but in its second characteristic, the
contractual credit arrangement. In any dis-
BUSINESS HORIZONS

3. THE CASHLESSSOCIF-~TY
cussion of the checkless society, this point
is the most difl~cuk to explain. For one thing,
the new system differs dramatically in pur-
pose from any of the credit card systems now
in operation. Additionally, a eheckless so-
ciety presupposes the eventual and complete
automation of the credit bureau industry, an
industry that has only recently begun to
show signs of adapting the computer and its
related technology for use in its programs.
If automation of consumer credit files is eco-
nomical (such operations are already under
way in California and in New York City),
and if the individual consumer's identifica-
tion can indeed become discrete and verifi-
able, does it not follow that the identification
card, when inserted in a terminal connected
to an automated credit bureau, should be
able to trigger an immediate credit-checking
mechanism that any merchant can in
turn use.
CnEvrr SCORING
At this point, the role of credit scoring must
be considered. It would be entirely too bur-
densome for a merchant to have to analyze
each person's record prior to granting him
credit. In an automated credit inquiry sys-
tem, the merchant instead selects a partic-
ular credit-scoring technique and has the
computer apply it to the customer's credit
record. If the green light on the terminal
flashes, the customer's score is at or above
the store's credit minimum. If the yellow
light flashes, the customer's score is below
minimum and he is asked to visit with the
credit manager. A red light indicates a
trouble code, and the merchant is instructed
to keep the card that has been presented and
to report the transaction immediately to the
bank, credit bureau, or local authorities.
Under this type of operation, the merchant
may grant credit to a customer and assume
all account processing chores and risks-
though they may be negligible-or he may
select from a number of alternative credit
plans, which relieve him in part or in total
of the processing chores and risks. He may
choose to do business with Bank A, for ex-
ample, and by pushing certain buttons on
his terminal, signal the computer at the
credit bureau to transfer the approved trans-
action information to Bank A. Or he may
choose Bank B, Finance Company C, Credit
Card Company D, and so on. The important
point is that the merchant has the right,
once a customer's creditability has been es-
tablished, to do business with whichever fi-
nancing organization he chooses, and for
whatever reason he chooses. Obviously, each
financing organization will have its own rec-
ommended credit score standard, but utili-
zation of a variety of scoring formulas can
be worked out by the flick of a switch or the
tap of a button in the merchant's terminal.
This flexibility on the part of the merchant,
when combined with the great freedom of
the consumer to do business with virtually
any merchant, will create the utmost in com-
petition among organizations that wish to
finance and process the receivables.
Let me summarize to this point. So far we
have considered a system in which the cus-
tomer's payroll amount is credited automat-
ically each payday to his account and in
which the customer carries one bank m card,
which provides a variety of verification proc-
esses and unlocks his bank account as well
as his credit inquiry account at the local
automated credit bureau. Finally, we have
discussed how any merchant wilt be able to
select from a wide variety of receivables
financing plans for the customer, including a
decision to finance the charge himself, on the
basis that the customer has passed the test
of a sophisticated credit-scoring process
based on current and highly accurate credit
data.
~REAUTHORIZED PAYMENT
The next important aspect of a checkless
system is the encouragement of the bank's
customers to agree to a preauthorized pay-
ment arrangement for certain household
25
FALL, 1967

4. DALE L. REISTAD
9.6
bills. This concept is not new in banking.
For years the insurance industry has worked
dosely with the banking industry to encour-
age its customers to permit the use of pre-
authorized insurance drafts for the payment
of premiums. The rationale behind such a
plan is that the premium must be paid or the
insurance policy, by law, will lapse. Since
the customer does not want this to happen,
permission is granted to the insurance com-
pany to draw automatically on the cus-
tomer's account for the agreed-upon pre-
mium at a set date each month, quarter, or
year.
It seems logical for bankers to encourage
more such preauthorized payments, thereby
eliminating much check-writing and hasten-
ing the arrival of the checkless system. A
number of typical household expenses are
particularly well suited to preauthorization.
These obligations include, but are not
restricted to, the following: personal note
payments, automobile payments, savings
account transfers, installment credit pay-
ments, savings bond purchases, mortgage
payments, insurance premiums, charitable
pledges, investment contracts, utility bills,
gasoline bills, magazine subscriptions, and
membership dues.
ELECrnONIC FUND T~Nsrm~
Now that we have the payroll deposited,
preauthorized bills approved, and a nearly
foolproof identification system established,
we are at last ready to venture into the real
heart of the system-the electronic fund
transfer process.
Let us consider such a process based on
the payment of a discount to a customer if
and when that customer is willing to pay a
bill prior to its due date. A case in point is
the simple process of purchasing a tank of
gasoline. The service station will be more
plain looking than the typical station of to-
day and will offer no stamps, contests, or
glassware. After the attendant has filled the
tank, the driver will hand the attendant his
bank m card. The attendant will check the
picture on the card, slip the card into a slot
on the pump, and push a button; the amount
of purchase, say $5.80, will clear to zero on
the pump, and the m card will pop out of
the slot along with a paper receipt. The
transaction completed, the customer will slip
his m card into his wallet, check the receipt
to make sure it shows $5.80, and then toss it
into the litter basket.
The transaction will not only be stampless,
prizeless, and almost paperless, but also
checkless and cashless for both the attend-
ant and driver. More importantly, however,
the transaction will likely involve a cash dis-
count for the customer, and under no cir-
cumstance will it ever become a receivable
for the gas station or for its parent company.
The transaction merits further explana-
tion. First of all, the customer presented his
bank identification card rather than a credit
card when it was time to pay for the gas. I
am sure that this concept, which suggests
the disappearance of the credit card as we
know it today, will not be received enthusi-
astically by those of my banker friends now
involved in credit card programs. The bank
IOcard as it is used in this example, however,
is quite different from today's credit card.
The bank card would serve beyond reason-
able doubt to identify the person presenting
it, but to do so, verification techniques will
have to advance considerably.
The terminal that the m card is inserted
in, whether it be on the gas pump or com-
pletely separate in the form of a cash register
device or card dialer telephone, will be tied
by voice grade telephone lines to a central
bank on-line-real-time computer system,
which might be located nearby, or as far
away as 50 or 100 miles from the gas station.
The operation within that computer system,
however, is the most significant and most
interesting one. Upon receiving the data
from the gas station pump terminal, the
bank computer begins a process of consid-
erable complexity, which merits special at-
tention. The computer first determines the
proper account numbers of both the paying
customer and the receiving gas station or gas
company (if payment is made directly to
the parent company). Next, the computer
BUSINESS HORIZONS

5. THE CASHLESS SOCIETY
determines whether the gas company pays
a discount for the payment of the $5.80 prior
to the due date, which is thirty or forty-five
days from the date of the transaction. In this
particular case, a discount is offered by the
company on a sliding scale on the before-tax
amount of the sale. This discount ranges
from 3 per cent on the transaction date down
to 1 per cent, which remains in effect until
a week before the due date. Once the com-
puter has the proper account information
and knows the discount provisions, it does
a sophisticated analysis of the bank cus-
tomer's electronic fund transfer account.
This account, which will eventually replace
today's checking account, is tied to an auto-
matic loan provision: when the customer
runs out of money in his account he can still
pay bills because the bank will automatic-
ally lend money to him, up to the limit they
have agreed upon. The computer analysis of
the account includes the following checks:
Account balance of "uncommitted" funds
(funds not already being held for previous
commitments)
Amount of money customer is apt to want
paid out prior to next scheduled payday (based
on past history of the account)
Amount of line-of-credit available and its
interest rate
Amount of discount on the gas bill.
Next, the computer optimizes the pay-
ment in favor of the customer and not in
favor of either the bank or the gas company,
although, on occasion, two or three of the
affected parties might coincidentally benefit
from the optimization schedule.
In this specific case, the customer had a
balance sufficient to pay normal bills up to
his next pay period, including this gas pay-
ment. The computer determined further
that, although the customer did have an
available line-of-credit balance, a dip into
it was not likely to occur as a result of paying
this bill. Finally, the computer determined
the discount amounted, subtracted it from
the $5.80, and transferred $5.68 into the gas-
oline company account. The 12¢ savings to
the customer is not a large sum by itself, but
when added to other discounts received
throughout the month, it becomes significant
and more attractive to the customer than the
various incentive plans now being offered.
A number of other possibilities could have
occurred during the optimization sequence.
If the gas company did not pay a discount,
for example, the computer would have auto-
matically deferred payment until the dead-
line date thirty or forty-five days hence. If
a discount had been offered but the cus-
tomer's balance was not sufllcient to pay
without using the line-of-credit provision,
the computer would have had to compare
the potential discount against the interest
rate on the loan until payday before making
a decision. If for some reason the payment
was not made even though a discount was
available, the computer would instruct itself
to reconsider the payment at a later date, or
at a regular interval up to the due date for
payment. The further possibility exists that
the bank and the gas company will team up
to offer the customer a still larger split-
discount with the provision that once trans-
ferred from the customer's account the
money would remain with the bank for a
specified period of time prior to being trans-
ferred to the gas company's account.
During the past several months, I have
had the privilege of discussing the checkless
society with a number of outstanding bank-
ers, economists, corporate treasurers, and
others who will be affected by such a system
if it comes to pass. In our discussions on the
discounting or split-discounting aspects, I
have come to recognize a "gray area" be-
tween cash and charge transactions. I now
believe that it will be in this gray area that
most of the "action" of the credit process of
this country will be in the not too distant
future.
To explain further, today's consumer
transactions are either for cash or credit, and
a discount is almost never made for payment
in cash. Now let us assume that a banking
system evolves that makes it possible, con-
venient, and economical for merchants to
grant discounts for cash (as in the gas station
example), and let us assume further that
such discounting obviates the need for many
of the currently attractive features of the
~7
FALL, 1967

6. DALEL. RF_~TAD
28
credit card. With the bank's computer work-
ing to optimize the customer's cash flow, and
with discounting provisions becoming more
and more common, the typical transactions
of the future might be neither cash nor
charge but a single instruction to the com-
puter which in effect would say: "Record the
obligation that I have just agreed to with this
merchant. Pay it immediately ff discounts
merit such payment, or pay it later ff no
discounts apply or ff for any reason it is to
my advantage to wait to pay at the latest
possible moment. But pay it in any event so
that the merchant need not enter my name
in his books as a receivable."
This is the gray area. Although some may
classify it as a cash area or as a charge area,
it does not appear to me to fall entirely
within either category.
BENEFITS
Now you may be thinking that, although the
technology would permit the eheckless sys-
tem, and although merit exists in giving a
discount for the immediate payment of bills,
this will never happen because it would not
be in the best interests of the gasoline com-
pany in question. Let us, therefore, analyze
how this system, if adopted, will in fact
benefit all parties in question.
First, the customer will benefit because he
will be able to use the same m card at the gas
station that he uses at the supermarket, de-
partment store, or restaurant. He will not be
forced to carry a knapsack full of plastic
cards on his back in order to negotiate the
cashless society. He will also benefit because
the principles of the time-value-of-money
will be applied to all his financial transac-
tions, not just the few large money transfers
that presently concern him. Furthermore,
the customer will be completely free to do
business wherever he finds the service, the
product, and the convenience most satisfy-
ing; he need not pass twenty gas stations,
for example, in quest of the one for which
he has a credit card or the one that matches
the stamp plan his wife uses at the super-
market. In terms of his own record-keeping
the customer will also benefit. At the end of
the month, he will receive a detailed state-
ment of all payments complete with the
name of the company to which payment was
made and the amount of discount, if any.
At the end of the year, he will receive a
consolidated statement. An analysis for tax
and accounting purposes by category and
company name will also be sent to him; for
example, category four might be automobile
expense, and Nick's Service Station would
show a year-end total of $132.86.
Second, the gas station will benefit be-
cause of the simplicity of the transaction.
Think of the ease, particularly during in-
clement weather, of inserting a plastic card
into the slot on the pump and pushing a but-
ton to initiate the transaction. The pumps
will, of course, total all m card transactions
automatically to simplify day-end recon-
ciliation. There will be no triplicate slips; no
over-strikes on encoding; no blurred, illeg-
ible writing; no addition errors; no booths
to build for the storage of encoding gear;
no forms; and no lists of bad cards to check
for.
Third, the gas company will benefit in
several ways. It will be spared the cost of
incentive-plan administration and may elim-
inate its entire credit card and accounts re-
ceivable application. (The only receivables
it will have will be from the nation's banks,
and portions of these receivables will be
transmitted daily to the gas company's com-
puter. ) In addition, the company will have
no losses from customers who do not pay
their bills. The postage saved annually will
in itself provide a substantial incentive for
the major gas companies to consider when
evaluating this system. The nationwide gas
company that now boasts 13 million card
holders will suddenly, as a result of this
bank m card approach, find that the ranks
of its eligible card holders have expanded
to 83 million; however, its competition will
have similarly benefited.
Finally, the banks will benefit. Since they,
of course, are not eleemosynary institutions,
they cannot be expected to engage in this
BUSINESS HORIZONS

7. THE CASHLESS SOCIETY
type of system unless benefits will similarly
accrue to them. They will benefit through
service charges on the various types of trans-
action, the tariff for which will be paid in
part by the customer and in part by the user
merchant. More importantly, the banks
will benefit because, as a by-product,
a balancing-off will occur in their respective
bargaining powers and those of their
friendly adversary, the corporate treasurer
(who in the past has been noted for his
ability to keep the absolute minimum bal-
ance in the demand deposit account at the
bank). The agenda for a future meeting
between banker and corporate treasurer
might include a discussion of discount terms,
splil~-discount arrangements, bank line-of-
credit rates, and computer optimization
techniques, along with the old faitlfful cate-
gories-service charges and corporate bal-
ances.
IMPLICATIONS
The gas station transaction previously dis-
cussed will probably not be among the first
to be converted to a computerized, bank-
oriented fund transfer system. Instead, be-
cause of the need for such a system, the large
supermarket chains are more likely to be
the first to convert since they operate on a
cash basis and a high percentage of their
transactions involves the cashing of checks.
In the supermarket, the housewife would
simply insert her m card in a terminal slot
located on the cash register, which would
be "on-line" to the bank's computer. The
process would permit the debiting of her
account for the amount of the transaction
and crediting of the supermarkets account.
If all supermarkets in a given area were to
work together in conjunction with area
banks to establish such a system, it would
be only a matter of time before other area
merchants would also want to join. And, of
course, customer convenience would in-
crease with the addition of each merchant,
with the program economies improving as
the user base broadened.
For those who might question whether
computerization has advanced to the point
that such a system would be possible, I
would like to quote from the April 17 issue
of EDP Weekly:
A store sales register in London and an Ncn
315 computer in California were linked up via
the Early Bird satellite in an unusual demon-
stration last week. In the experiment, a typical
retail transaction was keyed into the register.
Each portion of the transaction was verified by
the 315, which then sent the London register
operator instructions as to what to enter next.
The operator next used the register to make
an inquiry of the computer.
The signals were relayed over the 100,000-mile
journey via the satellite, using ground stations
at Andover, Maine, and Goordailly Downs in
Britain. Early Bird is a synchronous satellite
station about 22,000 miles above the mid-
Atlantic.
The time required for each communication to
California was about 300 milliseconds, with the
computer requiring even less time to respond.
The checkless society has been the subject
of concern to progressive members of the
banking community for the past two years.
In recent months, however, the subject has
aroused sut~cient interest outside the bank-
ing industry to merit articles in leading busi-
ness magazines and has received more and
more frequent coverage by the press, radio,
and television. As a result, the ranks of the
checkless society seers, doers, advocates, and
critics are growing larger each day.
The original concepts of checkless bank-
ing were rather narrow, and most of the
pioneers were in agreement on these con-
cepts. Today, however, the concepts being
discussed are much broader, and some of
the recent pronouncements are bound to
confuse rather than enlighten the general
public. For example, consider the pro-
nouncements in a recent speech by Richard
N. Mosher, credit sales manager for Carson,
Pirie & Scott of Chicago to the Bank Credit
Card Conference sponsored by Loyola Uni-
versity. His speech, entitled "Why We Do
Not Participate," included a number of ob-
servations about the checkless society, which
I would like to comment upon.
At one point in his discussion of "draw-
29
FALL, 1967

8. DAI~ L. ILrasTPa~
/
30
backs to the checkless, cashless society,"
Mosher stated that "the time lag between
purchase and payment would disappear."
This, as we know from our previous discus-
sion, is not a requirement of a checkless sys-
tem; in fact, the reverse may be true. The
checkless system permits any timing of pay-
ment transfers ranging from an instantane-
ous transfer (which might occur when the
local merchant offers the customer $20 in
cash in return for the transfer of $20 out of
the customer's account into his) to a three-
day delay at the local supermarket, to a
thirty-day delay on a payment plan, which
involves no cash-discount provision. In the
majority of fund transfer transactions, the
time lag will be optimally determined in the
customer's favor, always, of course, in keep-
ing with the customer's purchase agreement
with the merchant. Although Mosher is
correct in assuming that transactions will be
recorded on customer records at the time
they occur, this need not, and probably will
not, effect the thirty- to sixty-day grace pe-
riod merchants now allow their customers.
Mosher also stated that "overbuying could
become a very real problem for the con-
sumer" if and when a single bank card would
be acceptable to all merchants. Although
this might indeed happen, chances are that
the single, complete statement of a cus-
tomer's cash flow would encourage him to
manage his finances far more carefully than
he manages them today. The customer who
has purchased goods and services from fif-
teen merchants under fifteen different credit
arrangements, each of which is billed both
separately and differently, will seldom be
as fully aware of his financial condition as
is his neighbor who receives only one state-
ment.
Mosher stated that another disadvantage
for the consumer would be "the possibility,
even probability, of an increased cost of
transacting family business" in a checkless
society as a result of the high cost of the in-
dividual credit inquiry process prior to each
transaction. This problem may be eliminated
by continuing refinements in the automated
credit inquiry process and related econ-
omies, continuing improvements in equip-
ment, lower per-transaction line costs, and
less expensive input terminals. If costs are
still too high, a "chance" system might be
tried. In such a system, only a certain per-
centage of inquiries would actually involve
the complete hookup to the credit inquiry
center; the rest would be "dummy" inquiries.
While these might look realistic enough,
they would "flash green" without the bene-
fit of an impulse from the telephone. The re-
sult would be an infinitesimal increase in
bad debts-if an increase occurred at all-
and a line charge and inquiry charge at a
fraction of what it would have cost if all in-
quiries were made.
Mosher also mentioned the "possibility
that a bank card system, particularly one of
national scope, would elicit government
regulations" and suggested that since banks
are already heavily regulated, this would
bring them "one step closer to Orwell's con-
cept of 'Big Brother'." I can assure you that
the emphasis being placed by the American
Bankers Association on the study of and
careful development of a strategy for bank
involvement in the check,less society is not
based on a desire for regulation. Again, the
reverse is true. Such a system is completely
open, aboveboard, and in the best interests
of the customer, the bank, and the economy.
It permits banks to be highly competitive in
areas where they have every right to func-
tion and where competition will benefit all
parties involved. It squeezes nobody out of
the marketplace because it provides all mer-
chants with the privilege of using the sys-
tem to the extent they desire. It may indeed
lead to the demise of credit cards as we
know them today, but not the demise of
credit grantors, who will be able to compete
for the financing of receivables through ne-
gotiations with the merchants.
I agree completely with Mosher's com-
ment that "it is, in the fnal analysis, the con-
sumer who will decide the issue."
A grand and growing army of politicians,
clairvoyants, writers, sociologists, and, of
course, bankers have found a home with the
issue of the invasion of privacy. We are all
familiar with the Congressional investiga-
tions now under way in this matter, and are
BUSINESS HORIZONS

9. THE CASHLESS SOCIETY
no doubt gratified that technocracy has
reached that mature point at which careful
thought is given to dramatic change before
the change itself is allowed to occur. To sug-
gest, however, as some are doing, that con-
trol procedures cannot be developed by men
to prevent the computers, which they have
developed, from running roughshod over
humanity, is going too far. One might infer
from recent hearings, for example, that man
is incapable of developing and enforcing
legislation that would control the use of
data files by the various government agen-
cies. Some are suggesting, therefore, that
efficiencies, particularly in data base stan-
dardization programs for government com-
puter operations, be deferred or denied and
that the present proliferation of files and
systems be continued at the taxpayers' ex-
pense to protect us all against the so-called
invasion of privacy. It would be much
harder, of course, but would it not also be
more advisable to develop control proce-
dures that could be as disciplined and fool-
proof as those national defense systems now
in use. Does it make sense to deter progress
on the grounds that we can now create more
than we can control?
Perhaps the time has come for the private
sector to show that computerized systems
and data banks with tighter control proce-
dures can indeed be developed to ensure
more protection of privacy than the public
enjoys with the present, manual systems.
It is a matter of public record that the ABA
has formed a Personal Identification Project
Committee to determine whether a single,
discrete identification number (perhaps the
social security number) can be developed
for every person in the country. Bankers are
naturally interested in using such an identi-
fier; since banks are developing central in-
formation files for more efficient and sophis-
ticated processing of customer records, a
single identification number per customer
(rather than the several different numbers
that may be assigned to him now within a
single bank) would obviously provide a
much more orderly system.
Now, with the aura of "Big Brother" sur-
rounding the invasion-of-privacy issue, I
suppose it is only a matter of time before we
will be called upon to defend our decision
to attempt account number standardization.
One banker from a leading East Coast bank
has already suggested aborting the project
and using an existing combination of num-
bers to do the same thing that we believe the
single discrete and universally acceptable
number will do much better. His suggestion
came not because the project is an unde-
sirable goal for the industry nor because of
any fear for the invasion of privacy, but be-
cause he did not think it advisable to
heighten fears concerning depersonalization
and increased data surveillance.
For at least two years, I have advocated
the development in this country of a
consumer-oriented credit bureau industry,
which would do for consumer credit what
Dun and Bradstreet does for the business
sector. Such a system would require the ini-
tiation of a credit file listing by the consumer
and would supply a credit listing to the con-
sumer at any time. Most adults would want
to be listed since so many of our daily finan-
cial needs involve credit, but the listing of
individuals who chose not to participate
would be prevented by law. To be listed, a
person would fill out-just once-a complete
financial history, which would then be proc-
essed through the financial institution of his
choice and then in turn by the computerized
credit bureau. The listing on the computer
would be identified by the identification
number, and the person would carry a
machine-input card with this number and
the credit bureau number punched into it.
This system would differ from the present
system of consumer credit inquiry in these
additional ways:
1 The consumer could request, and would re-
ceive at any time and for a very small fee, a
complete printout of his own credit record from
the bureau.
2 While any legitimate business could sub-
mit financial data to the bureau for inclusion in
a customer's file, no business could receive infor-
mation on the content of that file without au-
thorization from the customer.
8 The majority of credit inquiries would be
handled by the application of a credit score to
the customer's credit data in the bureau, rather
31
FALL, 1967

10. DALEL. REISTAD
32
than by a request for specific personal data on
salary, savings, indebtedness, and so on.
This approach allows complete freedom
of choice on the part of the consumer to use
or not to use the system, provides complete
privacy, and guarantees the customer's right
to review his own listing (just as Dun and
Bradstreet's business customers are able to
review theirs today). It would also provide
a much more dependable credit determinant
and' avoid the present problem of the mer-
chant's having to ask personal questions that
may not even rate inclusion in his credit-
scoring formula. By developing such a sys-
tem as this in the private sector, perhaps we
could show by example that man can em-
ploy the tools he has created sensibly and in
the common good.
SINCE COMPUTEB mechanization will
drastically affect every conceivable type of
financial transfer in the future, it will also
affect the consumer's every financial move.
By definition, it will, therefore, affect almost
every financial move in business and in the
economy as well.
To my knowledge, this is the first time in
history that the complete financial industry
has anticipated a major structural change in
the payments mechanism. The useof paper
checks came about with the development of
the banking industry itself, and in the past
half-century has grown at a startling rate. No
real forward planning preceded it; ff it had,
perhaps the industry would never have al-
lowed the paper proliferation to occur. We
now perceive a new mechanism, and we are
starting to plan for its orderly implementa-
tion. It most likely will not evolve precisely
as we imagine it today, but some form of
cheekless or even cashless system is on the
horizon. I hope we will be ready, say by
1980, to convert to it in at least as orderly a
fashion as the banking industry today is con-
verting to the use of computers and elec-
tronic paper-handling devices.
In the imperial park at Ch'ang Ngan the Emperor had a white stag, a very
rare beast, which had no fellow in the empire. On the advice of a minister,
the Emperor had this animal killed and made a kind of treasury note out of
its skin, which, he believed, could not be copied. These pieces of skin were
a foot square [each piece being assigned the arbitrary value of 400,000
copper coins]. The princes, when they came to pay their respects to the
throne, were compelled to buy one of these pieces of skin for cash and
present their gifts to the Emperor upon it. This precaution ensured the
circulation of the 'White Stag Notes.' The skin of the white stag was, how-
ever, a limited quantity, and the time soon came when this device ceased
to supply the Treasury with much needed money. [C. P. Fitzgerald, as
quoted by A. J. To.vnbee in A Study of History, Vol. VII].
-M. L. Burstein
MONEY
BUSINESS HORIZONS