3 groups slowing any shift to a cashless society in US
By Susan Johnston Taylor
January 8, 2016
Predictions of plastic and mobile payments eliminating the need for cash have been floating around for years, but we don't seem any closer to becoming a cashless society than we are to interplanetary space travel.
It's not for a lack of innovation. In late 2015, Wal-Mart and Target announced plans to roll out mobile payment systems, much like Apple Pay, Samsung Pay and Android Pay. American Express is working with Jawbone to turn your fitness wrist band into a payment device. And Visa is looking at the public ledger data behind Bitcoin to further secure payments.
So, who or what is holding us up? Or will cash always be king?
“I think we're certainly moving toward reduced use of cash,” says Michael Hamlin, vice president of product management at financial services technology company Fiserv. “Cash use continues to dwindle and it dwindles at an ever-increasing rate.”
What's keeping the U.S. from becoming a cashless society anytime soon? These three key groups in the U.S. prefer doing their business with paper (dollar bills and checks) and coins:
Older Americans. A survey on generational attitudes toward mobile payments by consumer information company GfK found that while nearly half of Gen Yers believe mobile payments are faster and easier, only about a quarter of baby boomers feel similarly. Of course, a cashless society doesn't necessarily mean everyone is paying with their phones; traditional credit cards would still be a payment option that Hamlin doesn't expect to disappear in the near future.
Some seniors “just aren't as familiar with electronic means of payment as they are with using their checkbook,” says John Rush, an economics professor at Marlboro College in Vermont. Paying by check or cash “feels more manageable for them.”
I think we're certainly moving toward reduced use of cash. Cash use continues to dwindle and it dwindles at an ever-increasing rate.”
— Michael Hamlin,
of product management
But even some credit card holders prefer cash as a way to rein in spending.”Many people feel like they behave differently in how they spend based on whether it's cash or credit cards,” says Rush. “When you see the money disappearing as you spend it, you shop differently.”
Unbanked and underbanked consumers. Unbanked or underbanked consumers (those who don't have a traditional bank account or credit cards) may find a cashless society to be prohibitive. In fact, a 2013 FDIC survey found that 1 in 13 U.S. households were unbanked, which translates to 9.6 million households.
“We'd have to figure out how to expand banking services” before we could go completely cashless, Rush says. “That's a challenge because it's more expensive, in the way the banking system is designed, if you don't have a minimum balance” in your account.”
Some developing countries have enabled low-cost access to banking products through smartphones, but that hasn't happened stateside on a large scale. And not everyone has a smartphone.
And problems with the RushCard (a prepaid debit card) in late 2015 highlighted how vulnerable the unbanked and underbanked can be. Thousands of cardholders – many of them in lower-income households and others just starting out on their own – lost access to their RushCard money for a week or more.
Some small businesses. Some small businesses encourage customers to pay in cash to avoid having to pay processing fees associated with debit or credit card transactions. Big-box retailers may have the funds to invest in the latest point-of-sale technology in order to accept EMV chip cards and mobile payments, but for small retailers those costs could be prohibitive.
In rural areas where cellphone service is unreliable, mobile payments also may not be an attractive small-business option.
Many people feel like they behave differently in how they spend based on whether it's cash or credit cards. When you see the money disappearing as you spend it, you shop differently.”
— John Rush,
an economics professor
at Marlboro College
Other businesses, such as marijuana dispensaries, favor cash because they have had a hard time finding banks to process their card payments. Customers of these businesses also may not feel comfortable paying by credit card because they may not want the transaction to be tracked. “Marijuana is an industry that's legal in some states, but not federally legal, so banking will not work with these businesses,” Rush says.
Already, some of these businesses use crypto-currencies such as Bitcoin rather than cash or traditional credit cards. But given some of its problems with hackers and fluctuations in value, Bitcoin may or may not have staying power as an alternate currency. “No government wants an alternative currency to become too prevalent, because it introduces issues with taxation,” Rush points out.
That's not to say that the United States couldn't eventually go cashless, but Hamlin and Rush say it would take significant infrastructure changes to solve some of the challenges.
“I'm not optimistic that this is something that would happen really quickly,” Rush says. “There's still a lot of work to be done to give access to banking to the poor, but if smartphones become ubiquitous then this can work.”
Sweden made headlines in 2015 as it moves toward becoming the world's first cashless society. The country has embraced mobile payments and reduced the number of ATMs to discourage crime, lower the costs of handling money and boost transparency around payments.
But even in Sweden, going cashless may take longer than anticipated. Interestingly, the Swedes put new bank notes in circulation in October 2015.