Christopher Mims reports in the Wall Street Journal:
We are losing our cultural attachment to cash. A certain demographic (is) simply falling out of the habit of using cash. Last year was the first year that, globally, the value of credit-card transactions exceeded that of cash transactions. Banks stand to profit handsomely from this shift. Americans now lose $500 million a year to street crime but $8 billion a year in ATM fees.
After his business was robbed for the fifth time in just over three months, the owner of Park Cafe & Coffee Bar in Baltimore decided to do something that would have seemed radical for a neighborhood business just a few years ago: He stopped taking cash. It was a desperation move, but what happened next surprised owner David Hart. His sales didn’t go down.
A much larger experiment conducted by salad chain Sweetgreen, which has 66 locations on both coasts, yielded the same result. After a year-long trial, the company has decided to go completely cashless in 2017, says a spokeswoman. There were many factors in its decision, from increased transaction speed to the unhygienic nature of cash, but the first reason Sweetgreen’s spokeswoman cites is the same as Mr. Hart’s—keeping employees safe by reducing the chance of robbery.
The U.S. has been slowly moving toward becoming a cashless society ever since the introduction of the first general-purpose credit cards in the 1950s. But, as many businesses are discovering, it’s only now possible to ditch it altogether.
A host of factors have pushed many people in the U.S. to the point where they can stop using cash in their daily lives, and a host of unlocking technologies deserve credit. Mobile devices, in combination with Square and its many imitators, have made credit-card transactions possible for everyone from farmers-market vendors to home inspectors and other service-industry solopreneurs. Square, Clover Go, iZettle, Spark Pay and other payment newcomers even began helping businesses large and small handle their accounting while reducing fees associated with accepting credit cards.
Then there is the way we Venmo or PayPal our friends to settle personal debts instead of handing over twenties, the fact that you can now pay for parking with a credit card or an app instead of quarters, and the decline of cash-based toll booths—not to mention the rise of Apple Pay and its ilk, and of in-app payments for everything from ride-hailing services to takeout food.
The net effect of all these small changes is that Americans of a certain demographic are simply falling out of the habit of using cash. Last year was the first year that, globally, the value of credit-card transactions exceeded that of cash transactions, says Kendrick Sands, an analyst at Euromonitor. In the U.S., we crossed that milestone in 2004, and only 22% of transactions in 2016 were estimated to have been in cash. When Sweetgreen opened in 2008, 40% of its take was cash. By 2016, that value dropped to between 10% and 15%.
That leads to an obvious but important prediction: The decline of hard currency and the rise of alternate payments are now self-reinforcing phenomena that will, sooner than anticipated, lead to the end of cash for legitimate businesses.
And the remaining, mostly shady, uses of cash are why we shouldn’t lament its passing. There is little good research on the topic, but the one comprehensive study to tackle the problem of the relationship between cash and crime in the U.S. found that reducing the amount of cash in any given area significantly reduces not just theft but also violent crime.
Researchers reached this conclusion by studying the federally mandated shift in welfare benefit distribution. In the 1990s, states stopped giving recipients checks—easily converted to cash—and instead allocated money to debit cards. In Missouri, this shift happened in different counties over the course of a year. A team of economists and criminologists used historical data to attribute a 9.8% crime drop to the welfare system’s adoption of electronics benefits transfer, in a 2014 National Bureau of Economic Research working paper.
Lead researcher Richard Wright, a criminologist at Georgia State University, says these results are likely to be broadly applicable to the global shift to a cashless society. By simply eliminating a scarce resource required by criminals, street crime, if not cybercrime, can be brought to heel.
In contrast to the U.S. and China, where it’s happening more or less organically, other countries, including Denmark, Sweden and South Korea, have driven the shift to a cashless society from the top down. In many instances, this has been motivated by politicians’ desire to stamp out black-market activity and increase tax revenue. India is in the midst of its own government-led push toward a cashless society, but the country’s leaders argue it’s as much about bringing financial opportunity to millions of poor people. To bolster its case, the country is offering free bank accounts and overdraft insurance to the poor.
While cash has its costs—those Brink’s trucks aren’t cheap—cashlessness isn’t without its price. Banks stand to profit handsomely from this shift, and the U.S. Consumer Financial Protection Bureau is suing ones that take advantage of customers through overdraft fees, which are only sure to grow. Americans now lose $500 million a year to street crime but $8 billion a year in ATM fees.
As payment tech develops, others have their hands out, too. Apple, Samsung, Square, PayPal, Stripe and countless fintech startups stand to make fractions of a penny every time we whip out our cards, phones or smartwatches.
Many small businesses with narrow margins survive in part by doing business off the books. If you have ever been offered a cash discount, there is a reason—and credit-card fees are only a small part of it. The Internal Revenue Service estimates that small businesses account for more than a quarter of the annual $458 billion difference between what the IRS is owed and what it receives from taxpayers.
It is very likely cash will always be with us in some form or another. Even in America, 7% of people still do not have a bank account, and cash can be useful in times of crisis.
But we are losing our cultural attachment to cash. When Mr. Hart told his cafe staff about his decision to ditch cash, he proceeded with caution.
“I was very concerned, and I wanted to be thoughtful in explaining to them what to say if the customers push back,” says Mr. Hart. “But the customers didn’t push back.”