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- In January, New York became the latest US city to ban cashless businesses, joining other cities including San Francisco and Philadelphia.
- Those in favor of going cashless say it makes businesses more efficient. But legislators and consumers argue that it excludes portions of the population that don't have bank accounts or debit cards.
Analysts at Deutsche Bank's research arm recently released a series of reports on the future of payments. And cash, they said, is likely here to stay. "Over centuries, people have developed a deep-rooted trust in paper and coins during uncertain times. Today is no different," they said.
- From merchants to credit-card companies to consumers, here's who stands to win and lose in a cashless economy.
- Click here for more BI Prime stories.
The debate over the future of cash is heating up, with cities across the country banning or proposing a ban on businesses that don't accept physical money.
New York is the latest city to weigh in. The city council approved a bill in January that requires retailers and restaurants to accept cash and prohibits those businesses from charging customers more for payment in cash.
Last year, Philadelphia, San Francisco, and the state of New Jersey also passed bans on cashless businesses. Washington, DC will hold a public hearing on a proposed cashless ban this week.
Proponents of a cashless world say it helps businesses operate more efficiently, reducing time spent counting registers at close and running cash to the bank. And tapping a mobile wallet or inserting a card can also speed up check out lines.
But legislators are stepping in and arguing that by not accepting cash, businesses are discriminating against consumers who don't have bank accounts or credit cards.
There are also consumers who have data and privacy concerns and see cash as a more secure way to spend.
Analysts at Deutsche Bank's research arm recently released a series of reports on the future of payments. And cash, they said, is likely here to stay.
"Over centuries, people have developed a deep-rooted trust in paper and coins during uncertain times. Today is no different," the report said.
Still, the Amazons and Apples and Googles of the world, each with their own digital payments products, are pushing for a more digital-focused payment ecosystem.
Here's a look at the various sides of the cash debate.
Credit card networks
Credit card networks like American Express, Discover, Mastercard, and Visa make money when you pay with a card.
For every credit and debit card transaction, the networks charge a fee for processing. The names of fees vary - interchange fees, network fees, discount rates - but basically they're all percentages of transactions charged to banks that issue the cards and merchants that accept them.
Amex, for one, used to be accepted fewer at places than the likes of Mastercard and Visa. Many chalked that up to Amex' higher fees, which have since come down. As of the end of 2019, Amex now claims "virtual parity" acceptance with Visa and Mastercard, according to Bloomberg.
Digital wallets
From Apple to Google to Uber, tech companies are pushing for digital wallets as alternatives to both cash and cards. And they're catching on.
In its recent future of payments report, Deutsche Bank researchers are predicting that digital payments are more of a threat to plastic credit cards than to cash.
"While we believe cash will stay, the coming decade will see digital payments grow at light speed, leading to the extinction of the plastic card," the report said. "Over the next five years, we expect mobile payments to comprise two-fifths of in-store purchases in the US, quadruple the current level."
Apple Pay accounts for about half of mobile payments today, according to eMarketer.
Shutterstock/PeterVandenbelt
Merchants
Merchants who have rolled out cashless storefronts often cite business efficiency and security.
Going cashless means businesses don't have to count out registers, bring cash into the bank, and manually account for cash payments. A fully card-based and digital point-of-sale can make accounting and reporting easier, too.
But many once-cashless retailers have reversed course. Salad chain Sweetgreen, for example, announced it would start accepting cash as of April last year after being cashless since 2016. That same month, Amazon Go, the cashierless convenience store, said it would also start accepting cash.
Unbanked and underbanked households
Last year, New York's Department of Consumer and Worker Protection released data that found 11% of New York City households are unbanked (meaning they have no bank account), and 21% of households are underbanked, meaning they have bank accounts but use alternatives like cash-checking businesses instead of their banks.
So without a bank account, debit card, or credit card, cash is often the primary way this segment of consumers spend. And not being able to do so, lawmakers say, is discriminatory.
"The City of New York cannot allow the digital economy to leave behind the 25 percent of New Yorkers who are chronically unbanked and underbanked," said New York City council member Ritchie J. Torres, the cashless ban bill's sponsor, in a press release.
Small (sometimes cash-only) businesses that can't afford interchange fees
In New York, small businesses like delis and local restaurants often have credit card minimums or offer discounts for cash purchases. That's often to make up for the fees for credit card processing.
In a cashless world, these businesses would be required to accept card or mobile payments, forcing them to take on the transaction processing costs. Ultimately, this could be shifted back to consumers by way of higher prices on goods.
Consumers with privacy concerns
Deutsche Bank's research found that for those who prefer cash as a payment method, 22% of respondents in the US said that purchases remaining anonymous was a main reason to opt for cash.
With major credit card data breaches at retailers like Target and Home Depot in recent memory, some consumers are reluctant to spend on a card, preferring the security of cash. And while those breaches were due to magnetic stripes on cards, now largely replaced by chips, consumers still have hesitations around data privacy.