The idea of a cashless society is not a new one. The widespread use of debit cards and recent explosion of digital payment options have given the average person little reason to touch cash. And the launch of innovative cash-free (and cashier-free) stores like Amazon Go make it seem as though we’re headed for a truly cashless environment soon.
The pandemic has only intensified the need for cashless payment tools. “In the time of COVID-19, going cashless is safer and more hygienic because it allows for less contact between a cashier and a customer,” said Bobbi Rebell, a certified financial planner and expert for Tally.
In theory, a cashless society would be faster, more convenient and less likely to spread germs. But for the less privileged, it could sever the important lifeline that cash provides.
There are some big benefits of a cashless society …
There’s no denying that transitioning to cashless transactions could help improve several areas of society, from crime to convenience.
For one, digital payments provide heightened security. They provide opportunity for hacking and data breaches, but they also eliminate the risks of carrying cash, which are arguably tougher to mitigate.
“Despite the many valid concerns about the security of digital payments, they are intrinsically more secure than cash,” said Vinay Prabhakar, vice president of product marketing at Volante Technologies, a global financial technology company. After all, cash can be easily lost, misplaced or counterfeited. And when that happens, recovering the funds can be extremely difficult. “Most digital transactions offer various levels of security and repudiability, such as the ability to dispute a credit card charge, which cash cannot compete with,” he said.
Mainstream cashless transactions also carry certain information about the payment participants, including what was purchased and when, Prabhakar said. “This makes money laundering and tax avoidance much harder with cashless transactions.”
The exception, he noted, would be certain types of digital currency transactions (like Bitcoin or Ethereum) which are designed to offer the anonymity of cash but with the benefits of cashless payments. “But today, such currencies are mostly the subject of speculative investment rather than being the backbone of everyday transactions,” he said.
Rebell added that having your spending tracked helps you know exactly where your money went, allowing for better budgeting: “You also have an electronic receipt if you need a proof of purchase or to make an exchange.”
Finally, while digital transactions are always exact to the penny, cash transactions are notoriously leaky: $62 million is sucked out of the economy each year simply due to the small change that gets lost or thrown out. Plus, Prabhakar added, cash and metal coins use up precious natural resources, such as paper, copper, zinc and nickel, some of which are nonrenewable and only recyclable up to a point. Not to mention, the cost of producing two denominations — nickels and pennies — exceeds their face value.
Digital transactions, on the other hand, have nearly zero environmental impact, Prabhakar said. “The real estate reserved for banks of ATMs, and the measures required to physically secure large concentrations of cash, are another strong argument in favor of eliminating cash.”
… But the drawbacks outweigh the benefits.
Although going cashless might seem like a win-win, that’s only true if you are financially secure. There are definitely some downsides, especially for certain segments of the population. Prabhakar pointed out that many of the drawbacks or dangers of cashless payments derive from the same source as their benefits. “What is an advantage for one group is a disadvantage for another,” he said.
Even if you aren’t planning to embezzle your employer or commit tax fraud, there are reasons why you might want to keep your financial transactions private.
“Although the potential law enforcement benefits of a cashless environment are real, it is also important to understand how the constant tracking of transactions gives financial institutions and banks surveillance capabilities that have far-reaching consequences,” said Ray Walsh, a data privacy expert at ProPrivacy.
He explained that the flow and liquidity of capital, as well as the purchase decisions that people make, are information that institutions can use to judge individuals. “Ultimately, this gives institutions massively invasive powers that can lead to prejudice and discrimination,” he said.
There are deeper consequences to this type of financial surveillance, too. In countries like China, Walsh said, the potential for financial surveillance to be used to censor and restrict the freedoms of people who express dissenting opinions against the state raises very serious concerns. “This serves as a warning for other countries, including the West, where it is possible that similar actions could be taken to crack down on any transactions considered discordant to the authority of the state.”
Lack Of Access For The Unbanked
“We may be a cashless society in the future, but today, there are still many people who are unable to make digital payments because they don’t have a bank account, credit card, debit card or smartphone,” Rebell said. These people are known as the “unbanked,” meaning they don’t have access to affordable banking products and must instead rely on fringe services such as check cashing and payday loans.
The FDIC estimated that there were 8.4 million unbanked households in the country as of 2017. Another 24.2 million households were underbanked, meaning they had at least one bank account but also sought financial services outside the traditional banking industry.
Distrust of banks is one reason why some households are unbanked. But more often, it’s because they lack access to affordable services. Some don’t have the income and assets necessary to meet the requirements for fee-free bank accounts, while others live in banking deserts, the communities where banks have closed branches due to low profitability. Black and Hispanic households make up a disproportionate number of the unbanked and underbanked.
And though the banking industry already has a long history of discrimination, moving to a cashless society could potentially increase that problem among other businesses, too. Going cashless would essentially allow retailers and restaurants to discriminate against segments of the population by upcharging or denying service, Rebell said, including lower-income households and people of color.
Reinforcement Of Income Inequality In General
In addition to the unbanked, there are plenty more Americans who need cash to get by ― workers in service industries who are often paid in cash, for example. Undocumented immigrants, homeless individuals and victims of financial abuse also lack access to the banking system or technological tools needed to fully participate in a cashless economy. “Without social and cultural progress in these areas, the move to a cashless society will worsen, rather than improve, the situation of many of these groups,” Prabhakar said. “These considerations are particularly important in the coronavirus age.”
Notably, many of the countries with the highest digital transaction participation and least use of cash also have well-capitalized social welfare systems, high degrees of trust and low income inequality. Prabhakar pointed to Sweden as a prime example.
When making a cashless payment, there’s always at least one party that stands to benefit financially from it. “While there is almost never a direct cost to the sender for digital transactions, they do often impose costs on the receiver,” Prabhakar said. Those costs include credit card interchange fees and the fees businesses pay digital payment companies such as PayPal and Square3 for the privilege of receiving funds electronically.
“The 2-3% in fees that small businesses in industries with very low margins and low transaction volumes — think the corner store or main street independent retailer — can pay for merchant card services could be the difference between making the monthly rent or not,” Prabhakar said. But it’s not just business owners who shoulder those fees. Ultimately, the higher cost of conducting business is passed on to customers.
There’s also the potential personal cost. Studies show that paying with plastic causes consumers to spend more. “Cash can prevent you from spending more money than you intended, whereas credit cards can often encourage you to overspend,” Rebell said. Cash can serve as an important guardrail to help keep yourself out of debt.
Is going cashless a real possibility?
Ted Rossman, an industry analyst for creditcards.com, said he’s not ready to write an obituary for cash just yet. For one, cash accounted for half of transactions under $10 last year, and about a quarter of all transactions, according to the Federal Reserve.
Even before the pandemic, some efforts to go cash-free backfired. Some small business owners wanted to go cashless to speed the line and avoid handling cash, but major cities and states such as New York City, San Francisco, Philadelphia and New Jersey banned cashless stores in recent years to protect the right to use cash. Massachusetts has had a similar law since 1978.
Tipping, Rossman said, is another American custom that keeps cash in play. “When new payment methods get introduced ― like credit cards, debit cards and mobile payments ― they tend to work alongside cash, not replace it.” Even major public transit projects like New York City accepting contactless cards and mobile payments involve maintaining a way for people to continue to use cash if they can’t or won’t switch to paying with a card or phone, he noted.
“The U.S. often lags the rest of the world when it comes to payment methods,” Rossman said. “We’re a complex, heavily regulated market. We also tend to be set in our ways.”
Clearly, going cashless would move our country toward a more efficient, convenient and even hygienic society. But it would be at the expense of many. From slipping your 12-year-old neighbor a $20 for mowing the lawn, to handing your spare change over to a collection plate or hungry person on the street, to maintaining a thread of autonomy in an increasingly Big Brother-esque world, many of the daily occurrences that we may take for granted could no longer happen in a cashless society.