No cash, please: Should we embrace a cashless future?

April 24, 2019

A blog post by Tiffany Ramsay, Senior Market Insights Analyst at the Deloitte Center for Financial Services, Deloitte Services LP

“Cashless” retailers on the rise

It’s lunch time, and I’m eager to try a new establishment that opened near our office in Midtown Manhattan. I walk to the shiny new storefront, place my order, and make my way to the register to pay. As I dig into my wallet and start to pull out some cash, the person behind the counter interrupts me. “No cash, please!” the cashier (ironically) chirps, pointing to a sign near a card reader.

I’ve become all too familiar with “cashless” retailers. In the not-so-distant past, though, I can clearly recall “cash only” signs, especially at some smaller retailers seeking to avoid paying credit card processing fees. But these days, establishments that no longer accept cash seem to have proliferated overnight (at least in Midtown, where I work).

Dethroning cash

It’s long been said that "cash is king," but the tide could be turning in the US. While cash continues to be the most common payment method among consumers, its usage is declining. The use of cash in 2017 dropped by 3 percentage points to 30 percent of all transactions in just two years, according to the Federal Reserve Bank of San Francisco’s 2018 Diary of Consumer Payment Choice.¹ What’s more, because cash is most likely to be used in smaller transactions ($10 or less), it accounted for only 9 percent of total payment value in the same year.² The combined use of credit and debit cards, at the same time, has held steady, and mobile payments have begun to grow.³

Nearly cashless societies are already a reality outside the US. In Sweden, cash comprises only 2 percent of the value of all payments,⁴ and total cash in circulation accounts for just 1 percent of Swedish GDP (compared with 8 percent in the US).⁵ China, meanwhile, leads the way in mobile payments, recording more than $15 trillion in 2017.⁶

But should a cashless future be embraced? As more retailers become cashless and noncash transactions grow, let’s consider the pros and cons.

Less money, fewer problems?

What are the benefits of being cashless? To start, some retailers point to a boost in customer experience. Not handling cash could allow for an increase in speed and efficiency. Workers no longer have to waste time doling out singles, counting change, or deciphering which bills might be counterfeit. Thinking back to the countless times I’ve had to grab lunch, lines at cashless establishments do indeed seem to run much more smoothly, in my opinion.

On the back end, being cashless might streamline the accounting process for many retailers, reducing the reliance on employees to balance the register (and, in turn, likely minimizing error by automating the process). It might also help retailers reduce costs in cash management by eliminating the need to transport, store, and deposit cash.⁷

Most notably, though, the absence of greenbacks makes it harder to steal, and thus, a decrease in physical theft is often touted as one of the most compelling benefits of eliminating cash. Besides theft, as an untraceable currency, cash has been linked to other petty and more serious crimes (like terrorism, guns, drugs, fraud), alike. Some studies assert that cash is crucial to the health of the black market⁸ and have even linked decreases in cash usage with the dramatic decline in illicit US crime since the 1990s,⁹ so a decline in cash usage could help increase safety.

“No cash” has its drawbacks

Cashless payments, however, have several downsides that shouldn’t be overlooked. While a cashless society could decrease physical crimes, we might start to see a rise in cybercrimes, and the effects could arguably be more dire, especially for consumers. For instance, let’s say a hacker virtually steals all the money in your account. A cashless society would leave you with few options in emergencies.¹⁰

The impact to personal privacy should also be considered. A digital footprint follows all noncash transactions,¹¹ eliminating anonymity and spurring new types of data that companies or the government could use to track consumer activity and potentially derive patterns and make inferences without consent.

And those surcharge fees often tacked on when using credit and debit cards as payment? They still exist. Cash is free to use, but with every noncash payment, middlemen¹² usually take a percentage of each transaction. Last year, US retailers paid an estimated $64 billion in card processing fees alone.¹³

Perhaps one of the biggest criticisms of cashless payments, however, is exclusion. Critics argue that cashless establishments unfairly affect those in historically disenfranchised groups who are less likely to have access to noncash payments methods—namely the un/underbanked.¹⁴ According to Pew Research, those in households earning less than $30,000 per year are more likely to use cash in a given week than those with higher incomes.¹⁵ By not accepting cash, retailers risk marginalizing a significant (and vulnerable) portion of the population: In 2017, the un/underbanked combined accounted for 25.2 percent of US households.¹⁶

Many US cities have begun to take notice and weigh in on the debate. In fact, in March, Philadelphia became the first US city to ban cashless stores.¹⁷ New Jersey passed its own bill soon after to ban cashless retailers, too.¹⁸ Similar proposals in other major cities like New York, Washington, and San Francisco are also pending.¹⁹

A cashless society, no doubt, has its advantages, but it could also bring a host of new challenges, especially depending on what side of the counter you’re on.