Cashless Economy and it’s Affects on Society

The last five months have upended the composition and character of our economy, posing new challenges to well-established firms.

16:31 28 August 2020

Just last week, the Commerce Department announced the US economy contracted at an annualized rate of more than 32 percent in second quarter—the largest such decline in American history. Key economic sectors like tourism and entertainment—once major sources of American economic growth—are now reeling under the effects of the virus. Companies that operate gyms, movie theaters, and any other community gathering places are tasked with rapidly restructuring their firms for an increasingly personalized economy.

 

But while it seems intuitive that some of these sectors are facing insolvency, another casualty looms on the horizon that could exert an even more significant impact on the way our country approaches consumption—cash.

 

Long derided as unsanitary and a potential vector for pathogens, many companies during the pandemic have stopped accepting currency as a form of payment, requiring customers to make purchases using cards or other touchless mechanisms. Should it become the new norm, this trend could have profound repercussions on the American consumer experience.

 

But Amit Raizada, founder and CEO of venture capital firm Spectrum Business Ventures as well as the Amit Raizada Foundation who has made generous donations in the health care sector, sees opportunity in this paradigmatic change in a way others may not.

 

We sat down with Raizada to discuss how this new reality could be a boon to innovators and entrepreneurs.

 

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“Spectrum Business Ventures’ creed urges us to see the world differently, to find innovative opportunities in the sectors and ventures other investors would never even consider,” said Raizada. “That’s exactly how prudent investors should approach this new reality. If cash transactions are becoming less common, how can entrepreneurs and investors think about using new software or products to facilitate this shift?”

 

Raizada recalled his early investments in the gift card industry as an analog to the present situation.

 

As retailers began to trade in paper purchase vouchers in exchange for electronic gift cards in the late 1990s, Raizada invested in two firms—Card Compliant and Store Financial—that provided electronic account services integral to the burgeoning gift card industry.

 

“People often don’t realize how complicated it is for business to manage gift cards,” Raizada said. “Card Compliant helped mitigate that.”

 

Card Compliant offers services that keep track of outstanding gift card balances—which are recorded as liabilities on a given business’ balance sheet—facilitate transactions, and ensure gift-card issuers remain in compliance with byzantine escheat laws and regulations.

 

Store Financial took this model a step further, designing a gift card whose value was not linked to a designated store or company, but to a retail establishment as a whole. Effectively, this meant consumers could use a given gift card at any outlet within a shopping mall. 

 

 “Card Compliant and Store Financial helped remove the burdens associated with issuing gift cards, allowing companies and small businesses to utilize the new technology with peace of mind,” Raizada said. “But more importantly, Card Compliant illustrates an important principle that aspiring investors should consider—seeking out services that help extant markets run smoothly.”

 

As our economy faces the prospect of leaving cash in the past, Raizada urged aspiring investors to seek out ventures that offer new opportunities within this reality.

 

“This transition offers innumerable new opportunities for innovation in technology, software, and compliance services,” Raizada said. “By recognizing this nascent market trend and looking for opportunity where others see chaos, you can use your capital to catalyze strategic investments that could help shape the future of your industry.”