As the number of Americans who use cash declines, businesses that refuse to accept cash are increasing. A good thing right? Not so fast (sorry).
If you are used to carrying cash around town, cashless establishments may be inconvenient. But for the newly affluent individuals who live in previously stagnant urban cores, cashless businesses make for a convenient and seamless experience.
Though the number of cashless businesses are still rare overall, their owners, like Amazon Go and Sweetgreen, argue that a cashless economy is the future and people need to get on board. Going cashless, they say, also discourages illicit activities such as money laundering, human trafficking and tax evasion.
There are also other practical reasons to eliminate cash, including:
Safety. Because cash can be easily stolen, a cashless environment is a safer working environment.
A cashless business is easier to run, especially from a record—keeping perspective.
Businesses that carry cash have higher insurance premiums due to the safety and security risks of keeping cash on hand.
Counting cash every day and taking it to the bank takes hours per week and increases labor costs.
Cash is hard to track and easy to purloin - cashless businesses diminish the chance of employees stealing restaurant funds.
But of course this isn’t the whole story. You’ll find that most cashless businesses are relatively expensive and cater to a younger crowd of consumers, often in gentrifying areas where a large number of residents are still low to moderate income (LMI). For LMI consumers, a cashless business is inaccessible, inconvenient and in some cases, dangerous.
How Could Cashless Businesses Ever Be a Problem?
Because not everyone has credit, or credit card
Let alone a bank account. Policymakers refer to this population as America’s “unbanked” and there are many good reasons why they remain so. Some folks do have a bank account, but still prefer to use alternative financial institutions such as check cashing establishments, and are collectively referred to as the “underbanked. Nationwide, some 20% of African-Americans and 15% of Hispanics don’t have bank accounts according to the FDIC.
There are a lot of reasons why people remain unbanked. In some cases, they just don’t have enough revolving cash to maintain a minimum balance, a requirement often as high as $1000. In other cases, privacy concerns discourage individuals from using banks (discussed below). LMI families also can’t afford high bank fees. Just last week, I had three small transactions each under five dollars that occurred over the course of a couple of hours and each transaction resulted in an overdraft fee of $35 dollars. By the time I actually received an overdraft notice from my bank, I had racked up almost $150 in overdraft fees alone.
A startling 20-25% of LA residents don’t have a bank account or credit card.
Los Angeles is a good example of a city with a large unbanked population. With almost 100,000 people, LA has the largest homeless population in the country. Almost all of these individuals are unbanked. Almost a million undocumented immigrants live in LA Country - the majority of whom are unbanked or underbanked. Recent immigrants such as refugees or asylum seekers also tend to trust banks less, preferring to hold on to their money as cash. Add to this significant portions of the elderly, African-Americans and other minority or LMI groups that include large unbanked populations and you realize that a startling 20-25% of LA residents don’t have a bank account or credit card.
Yet just because these Angelinos are unbanked, does not mean that they don’t participate in the local economy. They either prefer to or have no choice but to use cash.
Those who have credit cards, often can’t use them
Despite a robust economy, a number of Americans are drowning in credit card debt. The average household credit card debt for LMI households is over $6,000. Because these households often cannot afford more than the monthly interest payments, credit card debt only continues to inch upward.
Cash is a good way for these families to spend only what they earn, avoid the burden of interest payments and learn good financial habits. Though some people are using credit cards for a beneficial purpose (to collect credit card rewards, building credit etc.) LMI individuals are often not benefiting from credit cards and going further into debt.
For those who have serious credit card debt, cashless businesses are just not an option.
Some choose not to use cards or join banks due to privacy concerns
In a time when consumers are becoming the product (there’s a reason why you don’t pay for Facebook or Gmail) your personal data has immense value. Every business where we use a credit card gets access to our personal information, including name, zip code and phone number. Combined with other data that is usually bought from data merchants, as well as information about our purchasing habits, this can result in a tailored profile both offline and online businesses can use to further target consumers. Inadequate privacy laws and a credit card and bank industry dominated by a few large players doesn’t help.
Though credit cards aren’t the only way merchants can track individuals, and likewise while using cash doesn’t guarantee privacy, cash is still nonetheless far more privacy-protective than credit cards.
Lastly, there’s no benefit to the cashless consumer
Consumers could still use credit cards at Sweetgreen before it went cashless. Going cashless does not increase consumer choice, it reduces consumer options.
There’s also an argument to be made that using cash is beneficial to smaller, low-margin businesses who can avoid paying the transaction fees that credit card companies charge on each swipe of the card.
Is There an Alternative to Cashless Restaurants?
The Regulatory Route
There is a growing movement that understands the advantages of a cashless business, but also the accessibility that cash provides to economically marginalized communities.
Massachusetts and New Jersey have already banned cashless businesses. New York City and Washington D.C. are considering bans, and San Francisco recently passed a ban on cashless businesses.
Philadelphia, which has an unbanked population of nearly 25%, recently passed an ordinance that is a good compromise. Though the law, which went into effect in July, bans cashless businesses from operating in Philadelphia, it exempts some on a case-by-case basis. For instances, places where cash truly creates a security hazard, such as parking garages, are exempt from the law as are retail stores that sell goods through a membership model like Costco (though there is some controversy regarding this exception as it looks like it was drafted specifically to allay Amazon’s concerns as it looks bring Prime membership to the brick and mortar world through its Amazon Go and Whole Foods locations).
The Banking Route
Banks have little incentive to curry favor with LMI customers, so incentivizing them to do so through tax subsidies or other similar measures is a good start. This is where neighborhood credit unions, with lower overhead and more concern for their local community, can be good allies. Banks already know your approximate net worth, so pegging bank fees to an individual’s net worth may also encourage individuals to enter the banking market - someone making $35,000 shouldn’t have to pay the same overdraft fee as a millionaire. Finally, mandating stronger privacy protections for banks and credit card companies can also help allay fears and encourage people to use banks.
If enough of the population feels comfortable using banks and credit cards, a cashless society could be less of a problem.
The Hardest Solution
In the end, as with many things, a more equitable society is the hardest, but most comprehensive solution. A community where LMI individuals make enough so that they don’t need to worry about being able to afford a bank account and thus buy products that cashless businesses would sell to them, is a long-term solution that’s good for individuals as well as for the businesses that aim to sell to them.