May 10, 2019 at 7:03 am ET
The way people shop and sell has been revolutionized by digital technology, the use of credit and debit cards and contactless payments, and this rapid growth in digital payments has also led some to question whether cash has become obsolete.
While our government should welcome innovative technologies and ensure the economy is fit for the future, caution must be exercised when it comes to businesses rejecting cash as legal tender for three primary reasons.
Cash is still king
Billions of transactions are conducted in our economy daily, and over half of all transactions of $10 or fewer and one-third of purchases under $25 are still conducted in cash. According to a 2018 Federal Reserve report, cash is used for 30.3 percent of payments; debit cards represent 26.2 percent, and credit cards constitute 21 percent of payments.
The Fed data counters current thinking on trends in online shopping and the use of credit and debit cards. According to the Fed, while online shopping continues to grow, 77 percent of payments were made in-person. For these in-person payments, cash accounted for 39 percent of the volume.
The Department of Treasury has laid out an eminently sensible set of criteria that should guide any reasoned examination of our money system. This government policy strongly considers individual preference and government cost avoidance in determining our mix of cash and coin. With respect to public preference — the data is clear. Cash remains the most frequently used payment method by American consumers.
Move to cashless payment disproportionately hurts the poor
U.S. government studies show that people with relatively low incomes (particularly the young, elderly, and minorities) use cash more frequently than individuals with higher incomes. Opponents of cash-free stores argue they introduce a troubling poverty and racial “tax.” How?
Many Americans do not have charge cards and checking accounts. According to the Federal Deposit Insurance Corp., the government entity that regulates banks, about 25 percent of U.S. households are either “unbanked” or “under-banked,” typically those with low incomes who lack the minimum balance to open checking and savings accounts.
Many of lower-income and under-banked Americans are subjected to higher interest rates on credit card purchases. Indeed, those who support legislation in many U.S. cities allowing customers to still use cash argue the cash-free movement is rooted in historic barriers to credit and banking services for certain non-white consumers.
A move to cashless retailers will increase unequal access to products and services
Restaurants and retailers are increasingly rejecting cash and accepting only electronic payment for goods and services. At least one forecast projects this trend could lead to as many as half of all restaurants and stores going cashless in the next 10-15 years.
Due to their disproportionate use of cash for payments, cash exclusion limits the places where the poor or communities of color can access goods and services. These poor urban neighborhoods often have access to fewer banks as it is. Supporters of legislation to ban cashless stores in New York, Philadelphia and other cities say cashless stores encourage financial “Jim Crow“ effects by restricting the places where people of color can shop, eat and receive basic services.
Who is really behind the cash ban? Amazon Go and Sweetgreen initiated cash-free business to save time and money and to increase efficiencies, but recently they announced plans to accept cash because cash-free had the unintended consequence of excluding those who prefer to pay or can only pay with cash. The strongest cash-free push over the years, however, has come from banks and card companies. Interested parties such as Visa and Mastercard have suggested that cash will hardly be missed.
Apart from the convenience of electronic commerce, consumers are constantly bombarded with ads promoting charge and debit cards. Not long ago, we were presented with commercials showing the frightening image of a bustling lunch establishment coming to a screeching halt when a consumer tries to pay with cash. The VISA tagline: “Money shouldn’t slow you down.”
It is important to step back and examine the motives behind this effort. The card companies and banks that benefit from high interest rates on card balances and high interchange fees to process transactions are spending millions to accelerate this move to plastic. While more Americans are using electronic commerce more frequently, there are consequences associated with this influence on consumer payment choice.
The Federal Reserve’s most recent household debit and credit data reports card balances now stand at $870 billion. Many financial experts recommend consumers experiencing credit card debt should stop using their cards and convert to paying for purchases using only cash.
The important point is that there remains a major need for cash, especially in economically underserved and under-banked communities. State and local governments are wise to proceed with caution when considering policies bearing upon the ability to use cash.
Discrimination against cash-paying consumers falls disproportionately on those least able to afford it — the poor and the elderly — because they make more small cash purchases. Contrary to advertising campaigns, the use of cash does not slow you down, but rather provides consumers with the choices necessary to robust economic participation.
Mark Weller is executive director of Americans for Common Cents, a pro-penny advocacy group.
Morning Consult welcomes op-ed submissions on policy, politics and business strategy in our coverage areas. Updated submission guidelines can be found here.