Change comes slowly but inexorably in the world of banking.

It has been 30 years since banking gurus started talking about the "checkless society." But finally it is coming true. And one basic reason for today's spurt of bank mergers and acquisitions is the quest of smaller organizations for the technology needed to offer telephonic transfer, ATM banking, and the other services that are doing away with the use of paper to transfer funds.

Now there is a new trend on the horizon: electronic cash. And again, while acceptance should be slow, bankers who ignore this trend do so at their peril.

What does the "cashless society" involve?

Using a microchip "smart" card, the consumer will go to his or her ATM or place the card in a specially equipped telephone and load it with spending power. Then, just as with subway cards stored with fare money or prepaid calling cards, people will be able to use their cards for small purchases of every kind, avoiding the need to obtain or carry cash.

On top of this, the electronic cash card can be used to pay for goods and services purchased over interactive television channels and the Internet.

Sure, there are major problems of security, money laundering, and the like, as critics and skeptics point out. But the banks working on electronic cash recognize this and are working to solve or at least contain the problems.

What does this development mean for the future of community banks? Will they be bypassed by the system of electronic money? Will it end the need for demand deposits - the bread and butter of the community organization?

To this observer, at least, the answer is a resounding no. Rather, there will merely be a change in the delivery system, one that could even augment the community bank's profits.

Bankers who have been around awhile remember when the thrifts were trying to get checking account authority.

Protection of turf was the key motive of financial institutions in the late 1950s and early 1960s.

Commercial banks were not allowed to use the term "savings accounts," but had to call them "thrift accounts" because the savings and loans and savings banks had a legal monopoly on the term "savings."

Banks, on the other hand, kept the thrifts out of checking accounts.

The fear was then that if thrifts got checking account authority, it would kill the banks and harm the Fed too, since the Fed's controls over the nation's money supply work through control over the banking system.

It didn't happen. Even before the Fed's authority to require reserve requirements was expanded to all depository institutions as a solution to the control problem, all that checking accounts at thrifts did was expand the velocity of money because thrifts had to run their clearing through commercial banks anyway.

Similarly, what would an electronic card do?

The public would obtain spending money by withdrawing it from an account at the customer's regular bank. It would be like a regular withdrawal. Only the bank would have the advantage of holding the customer's real money and using it while the available "electronic" balance sat in the card not yet used, just as an issuer of travelers checks uses the funds of the traveler until the checks are pulled from the wallet and used.

Lost, destroyed, or unused cards would provide benefits to the bank that filled them, just as lost dollar bills give the government one real dollar's worth of money for the lost piece of paper it had printed. A dollar unspent, burned, or lost is merely a piece of paper that cost the Bureau of Printing and Engraving an awful lot less than a buck to make.

In sum, money is merely a loop of information. And our banks just want us to tap into the loop through their own entrance.

Sure, with electronic cash we could fill our cards from a deposit in a bank thousands of miles away instead of using our community bank as the place where we leave our wealth before we transfer some of it to our smart cards.

But community banks have always known how to woo and win balances from the public. This is why they survive in a world where midsize banks find it more and more difficult to do so.

As long as the community bank continues to provide quick, dependable, personal service, the public will continue to place their wealth with it. Whether they take out the funds they want to spend in cash, by check, or by downloading money to a smart card will make little or no difference in the scheme of things and the viability of the local bank.

Mr. Nadler is a contributing editor of the American Banker and professor of finance at the Rutgers University Graduate School of Management.

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