Has it happened to you yet? Letâ€™s say you drop by the new cafe on the corner to pick something up, only to find that they donâ€™t accept cash. For many people, itâ€™s no big deal. Most consumers already have several cashless payment methods: credit cards, debit cards and mobile wallets on their phone. You can even pay by smartwatch.
Nevertheless, cash persists as peopleâ€™s preferred payment method. According to 2018 research by the San Francisco Fed, cash remains the most frequently used way to pay in the U.S., representing 30% of all transactions and 55% of transactions under $10.
Retailers meanwhile are eager to get rid of cash. A 2017 poll of retail executives commissioned by payments platform solution developer Adyen found that up to 78% of respondents were considering cashless stores that only accept cards and digital payment methods.
Does that mean weâ€™re heading for a completely cashless society? Thatâ€™s probably years if not decades away, however itâ€™s not too early to examine the implications of cutting out cash.
Many consumers already live a relatively cashless lifestyle without even making a conscious switch.
Debit and credit cards have been part of the financial landscape for decades. The credit card started with the Diners Club card in 1950, while the first debit card pilot program began in 1966. Today, both payment methods are accepted practically everywhere, with the underlying technology evolving to include encrypted EMV chips for faster and more secure transactions.
Then thereâ€™s the ongoing shift toward contactless and mobile payments. Many merchants let you pay on your smartphone through Google Pay and Apple Pay with a quick scan. Newer physical cards are also offering contactless payments, requiring you to simply wave the card over the point-of-sale card reader to complete your transaction.
But more and more, the decision to go cashless is made for us when retailers refuse to accept cash in the first place. Shake Shack restaurant mogul Danny Meyer made the switch at a handful of his restaurants in 2018 to improve the safety, efficiency and speed of transactions.
When met with criticism regarding the â€śsocioeconomic implicationsâ€ť of cashless operations, Meyer defended the decision, asserting that the benefits â€śoutweighed the unintended side effects for a small segment of our guests.â€ť
Mercedes-Benz Stadium in Atlanta switched to an entirely cashless operation in March. Management cited faster transaction times and flexibility for price adjustments as major factors driving the change.
Then there are clothing retailers including Bonobos, Everlane, Indochino and Reformation, all of which have gone cashless. United and Delta airlines no longer accept cash at ticket counters or for in-flight food and drinks.
The decision to go cashless largely benefits the retailers who implement the policy. Going cashless eliminates the necessity for having large amounts of cash on hand at retail outlets. It cuts out the costs of securing cash, like armored trucks and depositing cash into a business checking account. It also lowers the chances of being robbed.
Cashless establishments also cite more efficient transactions when cash isnâ€™t involved. Paying with card takes mere seconds while handling cash can take a little longer. Over the course of months and years, those seconds add up to a need for fewer cashiers, lower costs and happier customers.
And while such an economy may be more efficient and less expensive for many, a cashless society creates very real and harmful problems for others. What happens to people who donâ€™t have debit or credit cards?
Around 8.4 million U.S. households were â€śunbankedâ€ť in 2017, according to the FDIC National Survey of Unbanked and Underbanked Households. This means that 6.5% of U.S. households didnâ€™t have an account at an insured institution in 2017. Additionally, 24.2 million U.S. households were considered â€śunderbankedâ€ť in 2017, meaning that they had an account at an insured institution, but also used other nonbank financial services. These alternative services include money orders, check cashing, international remittances and payday loans.
Unfortunately, money orders and remittances can tack on fees, while payday loans can land already low-income households in debt.
Becoming a â€śbankedâ€ť part of the population isnâ€™t as easy as â€śjust getting a bank account,â€ť either. Per the FDIC study, the most commonly cited reason for not having an account was not having enough money to keep in an account. Approximately 52.7% of unbanked households chose this as a reason.
The second-most common reason for not having a bank account â€” at 30.2% of the unbanked â€” was distrust of banks. This mistrusting group also indicated that they were not at all likely or not very likely to open a bank account in the next 12 months.
The FDIC also found that 29.9% of unbanked households that previously had an account cited â€śbank account fees are too highâ€ť as their reason for not having an account anymore, and 24.9% cited â€śbank account fees are unpredictableâ€ť as a reason.
Millions of Americans face these tangible obstacles to opening a bank account, leaving them with few payment options. Cash is an easily accessible and incredibly liquid asset that allows unbanked Americans to make purchases. A cashless establishment excludes these unbanked customers and bars them from buying goods simply because they canâ€™t afford a bank account. A cashless economy would only amplify this partiality.
In order to combat the blatant exclusion of unbanked customers, Philadelphia became the first major U.S. city to ban cashless stores in February 2019. The bill, an addition to the existing Philadelphia Code section titled â€śFair Practices Ordinance: Protections Against Unlawful Discrimination,â€ť prohibits retail establishments from refusing to accept cash as a form of payment. This includes posting signs on the premises indicating that cash payment is not accepted and charging a higher price to cash-paying customers. The bill goes into effect July 1, 2019.
San Francisco quickly followed suit, when the cityâ€™s Board of Supervisors voted to amend the Police Code â€śto require, in general, that brick-and-mortar businesses accept payment in cash in connection with the purchase of goods and services other than professional services,â€ť in May 2019. The bill would go into effect 30 days after enactment, which typically occurs when the mayor signs the ordinance.
The state of New Jersey also enacted such legislation in March. The bill prohibits discrimination against cash-paying consumers, stating â€śA person selling or offering for sale goods or services at retail shall not require a buyer to pay using credit or to prohibit cash as payment in order to purchase the goods or services,â€ť adding that sellers must accept legal tender when offered by the buyer as payment.
New Jersey is not the first state, however, to have such a law. Massachusetts has had a section in its laws regarding â€śDiscrimination against cash buyers.â€ť It states that â€śno retail establishment offering goods and services for sale shall discriminate against a cash buyer by requiring the use of credit by a buyer in order to purchase such goods and services.â€ť
New York City has introduced a similar local law â€śto amend the administrative code of the city of New York, in relation to prohibiting retail establishments from refusing to accept payment in cash.â€ť
A completely cashless society would exclude millions of Americans from participating in the economy. Thankfully, weâ€™re not there yet. Cities are leading the charge against a completely cashless society. However, the retail, finance and tech industries certainly know their profits increase from more card-based and digital payments, and less cold, hard cash money. Itâ€™s no accident that online banks are becoming dominant in personal finance, shifting the focus to mobile interfaces and transactions, freeing them and us from ever having to touch cash.