We’ve all gone on wild goose chases looking for the nearest ATM after learning a local business only accepts cash. But now more than ever, businesses are heading in the opposite direction: refusing to accept cash and only accepting plastic. Some notable examples include Amazon Go, Sweetgreen, and Mercedes-Benz Stadium, home to the NFL’s Atlanta Falcons.
This cashless trend should not come as too much of a surprise. The number of non-cash payments in America reached 120 billion last year, according to the Federal Reserve, and the number of people who still carry paper in their wallets continues to plummet. A Capital One study found that only about one in four Americans carries cash, and almost 75% of transactions are cashless.
It’s helpful to understand a bit about the landscape around cashless businesses. A handful of large financial services companies, like Visa, have begun incentivizing small businesses to stop accepting cash, offering each one that complies $10,000. Starbucks experimented with a cashless location in Seattle last year.
As businesses begin to dip their toes into the world of cashless businesses, however, many cities are digging in. Philadelphia is one such city that has banned cashless businesses. It’s possible that other cities will follow.
There’s a debate playing out in the court of public opinion as to whether going cashless is the right way to go. Credit card companies and large businesses have an incentive to support a cashless society, as they can gain financially from cashless arrangements. But is ditching cash the right thing to do for small businesses? There are a number of benefits and risks.
Businesses can cash in big when they go cashless
Eliminating cash can make your business run more smoothly and cut out many of the inefficiencies that come with accepting and processing cash.
Consider, for example, that every bill and coin must be counted manually — a task that takes the average retailer about four hours each day. Employees, especially younger ones, have to be trained in handling cash since that is not a skill that everyone knows. Someone — either an armored car or the business owner — has to transport the currency to the bank. According to the counterfeit currency detection company Fraud Fight, businesses lose as much as $10,556 per year counting and handling money.
There are also security concerns with handling cash. Fewer than 10% of small businesses have experienced a burglary, but small business owners often say that eliminating cash (and posting signs that their business does not carry cash) makes them feel a lot safer.
Perhaps most importantly for businesses, going cashless just makes good business sense because it speeds the whole payment process along. There’s no waiting for the woman at the front of the line digging in her purse for another quarter. Processing mobile payments is instantaneous.
To a lesser extent, proponents of cashless businesses often cite an easier currency exchange process when traveling abroad, more sanitary conditions (cash is filthy!), and less crime around counterfeiting.
Going cashless is also dangerous
Of course, there are also a number of drawbacks to ditching cash, and a few of them are significant. City and county officials have moved to quash the cashless trend because they say it excludes too many people.
It’s estimated that around 7.5% of the population does not have a bank account. And those who make $30,000 per year or less are four times more likely to make all or most of their purchases with cash than those who make $75,000 or more per year, according to the Pew Research Center.
Most alarming to businesses, going cashless can be expensive. Typical credit card processing fees sit at around 2% to 4%. The National Retail Federation estimates that swipe-based transactions cost businesses more than $70 billion per year. Those businesses that do not currently accept credit cards or mobile payments will need to invest in a reliable POS system.
Some business owners worry that, as the cashless trend becomes more popular, credit card companies will raise their fees. The top 10 credit card companies already control 90% of the market.
There’s also a security concern. Cash provides a layer of anonymity, which some customers prefer. Cashless payments could expose personal information to possible data breaches. In some cases, if bank accounts are hacked, there’s no way to recoup the money. Without physical cash, consumers could be left without a way to pay.
Still, others worry that customers will have a harder time controlling their spending habits. Fundera created an infographic on the pros and cons of cashless businesses and some alternatives to consider.
Author: Meredith Wood
Meredith Wood is the editor-in-chief at Fundera. She has specialized in financial advice for small business owners for almost a decade and is sought out frequently for her expertise in small business lending.
Infographic courtesy of Fundera