When cash is lost, the value of all remaining money in the system increases, and everyone holding money benefits from reduced inflation. When a money card (as proposed) is lost, the backing money eventually returns to use, profiting the bank that issues the cards, unless some protections are put in place.
Well, this is likely to happen in any cash implementation where the gubmint/bank does not purposely inflate the currency. However it's not necessarily bad - after all, if people can make money at digicash that's not government tampered with (inflated), they'll be more people willing to do it. Of course, this will lead to fierce competition, likely to the point where you can earn interest on the cash in your wallet! Either that or, have a independant digicash system which is introduced at the price of $1 for one digibuck, and then allowed to fluctuate, and rise. After a few years you might be able to sell your digibucks for $2 apiece, or more. :)
The idea of an S&L investing my money card's backing money in junk bonds makes me nervous. I'd like full disclosure on how each bank issuing cards invests or uses backing money.
Nobody's forcing you to use their digicash system, so you could demand whatever disclosure you wanted, or take your business elsewhere.
Without addressing the privacy issue as well as the inflation and investing issues I've brought up, they'll never be able to achieve their goal of widespread consumer acceptance.
Probably not, but some people are stupid.