The cries of a cashless society have been ringing for many years. And while the number of cash purchases is slowly declining, making up 30% of all transactions in the US. This plan of pure efficiency seems about as likely as us reaching a utopia. Possible, but not for at least a couple of generational power shifts.
Still, tracking this battle of cashless payments and cash is important. And gives a lot of signals as to where we’re going to see innovation (and growth in the financial sector).
A Cashless Society
The benefits to a cashless society theoretically include lower crime, less money laundering, less time and costs associated with handling paper money, and easier international currency exchange. While Buffett may say cash is easier, realistically a cashless society is safer, more efficient, and more aligned with the technological advances we’re making elsewhere.
The drawbacks of a cashless society, though, include more institutional control over service fees, major problems for the unbanked, and no alternative sources of money if you’re the victim of fraud.
This whole idea is actually very hard to get a behavioral read on. I know that Fintech and banks want to go cashless. But it’s hard to say what side of the fence the government lands on, small businesses, and consumers at large.Ryan
The IRS estimates that tax evasion in the U.S. costs the federal government an average of $458 billion per year and rising. Tax evasion is a physical currency problem. So you’d think that governments would be aligned around moving toward cashlessness. Yet, New York just passed a bill prohibiting stores, restaurants, and retail establishments from refusing cash payments. Other states have similar bills.
The main reason is that a cashless policy marginalizes the large population of unbanked and underbanked people in this country. Poor credit and low income lends very little optionality for banking and getting credit cards, often with absurd fee structures.
Families earning less than $25,000 use cash for 48 percent of their transactions. [Which is a far cry from the 30 percent national average.]PYMNTS
Cash is cheaper to use than digital payments if you’re socioeconomically low.
When it comes to small businesses themselves, many see cashlessness as an easier way to operate. That is if you’re not laundering the occasional dollar or two. Yet, most businesses don’t have any interest in taking the jump:
Third-party research commissioned by Square shows that 83% of small business owners in America never plan to go cashless.HBR
Overall, the benefits of a cashless society are quite murky. Efficiency and transparency, two standards that technology brings, are nice and all. But only if everyone can reap those benefits.
What It’ll Take
Technologically, we’re capable of a cashless society. We have everything we need to make the switch. But it’s easier said than done.
First and foremost, cashlessness can’t be a burden on the poor. Banking the 47% of underbanked or unbanked black families (and 25% of all US households) is a must. We cannot force them to buy prepaid debit cards just so they can buy groceries in a cashless society.
Banking the unbanked, though, is a tricky problem that requires great marketing and a change to institutional banking structures, which are by nature designed for wealth.
There need to be clearer benefits for small businesses that operate on a cash basis.
I’m a major frequenter of two only-cash businesses. One’s a breakfast place and the other a bar. Both are extremely successful – to the point where I’m constantly hypothesizing about how much money is on hand at any given time.Ryan
It would take a miracle to get them to install credit card processors. And they’d fight tooth and nail against those 3% credit card fees. But if they didn’t have to buy the processor and those fees came down, I’d bet they’d consider it.
And most importantly, we need an actual transition plan away from cash for those who aren’t digital at all. Digital Wallets and autonomous finance apps provide a lot of momentum toward a cashless society. But they’re not helpful at all to the non-technologically-savvy.
Although I have a lot of faith in companies like Cash App, PayPal, Visa, etc. to bring us closer to a cashless society. I’m not convinced that we’ll see it happen in the next 20 years. Not unless there’s a major push from the government.
In a place like Sweden, where just 15% of all transactions are cash, they’ve simply been more accepting of this change. Cashless businesses are common, some banks don’t even handle cash, people have adapted, and the government is helping the idea move forward.
While we may not experience a cashless society anytime soon, I cannot deny that we’re moving toward a less-cash society.