One of the most hotly debated topics of the past decade has been going cashless. However, the advent of COVID-19 has brought the need for contactless and cashless payments again to the fore.
To understand the implications of a cashless economy to your business, we’ll start with a definition then move onto the pros and cons of a cashless economy.
Definition
A “cashless economy” is an economy that operates without cash payments. Over the past decade, cash has been declining as more consumers move toward payment cards, especially payment cards with rewards. Recent research backs this up, with cash remaining the payment method of choice for payments under $10, accounting for half of all transactions and shrinking to 10% of all transactions over $25.
Going Cashless Isn’t Against the Law (in most places)
There is a misconception that a cashless economy is against the law, not on the federal level.
The Federal Reserve on its website says, “U.S. coins and currency are “legal tender for all debts, public charges, taxes, and dues,” and “private businesses are free to develop their own policies on whether to accept cash unless there is a state law that says otherwise.”
However, there is a patchwork of state and local laws that restrict cashless transactions. The most notable and oldest is Massachusetts, where a 1978 state law requires “retail establishments must accept legal tender when offered as payment by the buyer.”
Cashless Bans
According to a June 5, 2020 article published by the National Law Review: “Since January 2019, at least 21 cities and states have adopted or are considering cashless retail bans. Massachusetts, Rhode Island, and New Jersey have already enacted bans, and at least ten states may be poised to follow. Berkeley, Philadelphia, and San Francisco also prohibit retailers from refusing cash; New York City’s ban takes effect on November 21, 2020. At least four other major cities are considering bans of their own.”
What’s driving this legislative push is, in part, a fear of discrimination against customers who don’t have ready access to remote pay or some form of debit, credit, or prepaid card.
Impacts of COVID-19
Stay-at-Home mandates imposed by states and cities nationwide, and CDC recommendations reduced the number of in-person transactions and replaced them with online or digital payments. Government, industry organizations, and trade groups all expect the trend toward online and digital payments to accelerate over the next 18 months.
One of the more interesting facts to come out of the last six months comes from The Federal Reserve Bank of San Francisco. In a recent survey, the bank found that nearly two-thirds of those surveyed hadn’t made a single in-person transaction since January, with the remaining 33% withdrawing and using cash in part due to a distrust in banks during challenging economic times.
Cashless Advantages
Digital transactions, due to the lack of a physical transfer of card data, are safer, reduce crime, prevent tax evasion, and generally more convenient and more affordable for businesses and government.
Health & Safety
From a health perspective, digital transactions are more hygienic as they eliminate the need for physical contact with cash or a payment card. Health experts estimated that the COVID-19 virus could live up to two days on cash and plastic surfaces. Cashless payments eliminate the potential of a disease spreading through physical contact.
Further, the risking of losing money through credit cards, digital wallets, and other platforms is lower since accounts can be blocked. Lost cash is nearly impossible to recover.
Reduced Risk of Crime
Cash tills in businesses have long been a target of criminals and a source of violent crime. When cash isn’t present, the risk of theft is lower. The need for security guards and other cash related security measures go away. Another business benefit is the reduction in insider theft. The potential for employee theft is lower when cash is not on the premises.
Organized crime will also have a more significant challenge in accessing funds as digital transactions become more widespread.
Tax Evasion Will Be Harder
For governments of all sizes, tax evasion is a significant challenge. Tax evasion is higher among self-employed workers and small businesses paid in cash. Individuals and businesses looking to pay less in taxes declare less income than what they earned. It is this under declaration of income leads to a loss of tax revenue for governments. If governments can close the gap between what has been paid and what has been declared, it would be equivalent to a 2% increase in income tax revenues. Cashless digital transactions will make tax evasion harder to commit.
Convenient and Faster
Digital transaction options offer consumers unparalleled convenience to pay as they choose to pay. Businesses and governments can receive payments 24/7/365, speeding cash flow, reducing late/missed payments in addition to labor and time savings from eliminating cash handling and reconciliation tasks.
Modern payment systems integrate with existing accounting systems reducing the need for manual data entry and its accompanying potential for error streamlining accounting and operations. There is more transparency with digital payments as it facilitates tracking and increased accountability.
More Affordable
While there are costs to digital transactions, these costs need to weigh against maintaining a cash infrastructure. Billions are spent each year by governments, banks, businesses, and other third parties to maintain a cash infrastructure.
Disadvantages of a Cashless Economy
Hacking and Breaches
Payment and personal information are accessible to the businesses where consumers make purchases, and potentially the government. Data transmitted and stored on networks can be hacked, making it vulnerable to breaches.
Technical Problems
Technical issues like downtime, outages, and other disruptions that can block access to money. Natural and human-made disasters could cut off access to funds for days, weeks, and even months.
Exclusions
People at lower economic levels and immigrants can face challenges receiving or making payments, especially those without bank accounts. The same holds for older generations who may not be comfortable with digital money or online payment methods.
Familiarity
People who manage their finances through cash might find it more challenging to keep track of what they have spent using digital transactions.
Fees
Governments, banks, and other third parties involved in digital transactions charge fees for processing these transactions, raising goods and services.
Tips for businesses considering going cashless
Before merchants decide to go cashless, experts and cash-free veterans suggest you consider the following:
Think carefully about who your clientele is: Do they have access to other payment forms? Are they comfortable with losing the cash option?
Consider who you might be willing to not serve: You might lose young, elderly, and low-income customers whose only form of payment is cash.
Try to foresee what the general reaction might be: Some businesses have gone cashless successfully; others have faced online complaints and even boycotts.
The National Law Review offers this advice – “Before converting to a cashless model, retailers should consult with an attorney to confirm that local and state laws do not ban discrimination against cash payments. Because many cashless retail bans carve out internet, mail, and phone transactions, businesses may be able to continue delivery and curbside pickup without violating the ban, so long as their in-store customers can pay with cash. Once a cashless policy is implemented, retailers should regularly monitor state and local legislatures for cash payment protection proposals, especially if they do business in a large number of jurisdictions.”
Conclusion
While the challenges to cashless or digital transactions are real; there are many advantages that secure cloud-based payment platforms like IntelliPay can offer to businesses of all sizes who aren’t ready to go 100% cashless. Digital transactions improve not only efficiencies and reduce costs but enhance customer safety and satisfaction. Digital payment solutions can be customized to any use case, integrated into existing software platforms, streamline operations, and reduce or eliminate processing costs.
For more information on how IntelliPay’s digital solutions can solve your financial, operational, and technical challenges, contact Phillip Buck at 855-872-6632 x110 – phillip.buck@intellipay.com.
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