Is the U.S. on Its Way to Becoming a Cashless Society?

Posted in Dinar Recaps Archives on 7/30/2019

Is the U.S. on Its Way to Becoming a Cashless Society?
Shelle Santana JULY 23, 2019
Is the U.S. becoming a cashless society?

As digital payments spread from coastal coffee shops to rural restaurants, business owners, lawmakers, and consumers across America are asking themselves this question. And depending on where you live, the concept of “cashless” is either a heated debate, the wave of the future, or a term you’ve never heard of.

Where the debate does exist, it highlights the growing tension between an evolving consumer payments landscape, a desire for increased business efficiency, and a growing concern that un- and underbanked consumers may be marginalized in a cashless economy.

The rise of digital payments, which includes traditional debit and credit cards as well as mobile payments, have contributed to the steady shift in payment practices among consumers.

According to the FDIC, cash represented just 30% of all payments in 2017. Furthermore, 68.7% of U.S. households had a credit card in 2017 vs. 63.8% in 2015.

Business owners who recognize this trend are responding accordingly, with some opting to go entirely cashless in an effort to increase operating efficiency, reduce wait times for customers, and create a safer work environment by mitigating the risk of theft.

Perhaps the most high-profile example of a cashless business are the Amazon Go stores, which use computer vision technology instead of cashiers to record what customers select and then automatically charges their card.

But does this mean we’re on the verge of a cashless revolution? To answer this question, I collaborated with Square, the payments and financial services company. Together, we analyzed millions of payment transactions from their database to determine just how close–or far–the U.S. is from becoming a truly cashless society.

Our findings suggest that the cashless trend is clear but nuanced, and highlights a few factors that sellers should consider when contemplating whether to forego cash payments.

First, our analysis shows that more consumers are using their credit and debit cards for smaller purchases. In the past four years, the use of cash for transactions under $20 has dropped from 46% to 37%.

Specifically, in 2015, half of consumers at Square businesses used their card for an $8 transaction, like a sandwich. Just four years later, in 2019, the transaction size has been cut nearly in half. Now 50% of consumers use their card for as little as a $4.50 purchase, like a latte.

This behavioral shift can partially be attributed to marketing from credit card companies aimed at increasing usage of cards for small, day-to-day purchases. It used to be that credit cards were strictly for large, special, or emergency purchases.

That mindset no longer exists, so people are increasingly comfortable using their credit cards for smaller transactions at places like drug stores, coffee shops, and delis.

Second, this trend isn’t limited to coastal, major metropolitan areas. Outside the top 25 metropolitan markets, the transaction amount at which consumers prefer their cards to cash dropped from $8 to $5.50 over the last four years.

Within the top 25 metropolitan markets, the decline isn’t quite as steep; the transaction amount at which consumers used their cards only dropped from $5 to $4 over those four years. As smartphone penetration and digital payments expand, so will cashless capabilities.

Third, for some business owners, a cashless business model is a strategic choice that provides clear benefits. While much of the current narrative regarding a cashless society is focused on the downside, there are advantages for both business owners and consumers. The key is understanding customer payment preferences.

For example, Travas Clifton, owner of ModCup Coffee and a Square seller, has seen the benefits of being cashless first-hand at his three New Jersey cafes. When he learned that 81% of transactions across all locations were made with credit or debit cards, he decided that the remaining 19% of cash transactions were worth potentially risking to gain more time with his family and business.

“An hour and a half [away from my shop to deposit cash] at 9 AM in the coffee business is valuable business time. That means I could be at one of my espresso bars serving people coffee. Instead I am having to hire someone to take my place at the bar.

What I’ve realized is that [cash is] the same as a credit card, it’s costing me money to process so I said, scrap it, we’re going cashless” explains Clifton. Turns out, most of his customers were fine with the switch.

But almost 1,000 miles away in St. Louis, Missouri, Laura Leester, owner of Pieces restaurant and game bar, had a very different experience running her cashless business.

She decided to open her business with a cashless model, drawn by the increased efficiency and safety, but quickly realized that nearly each day, she interacted with disgruntled customers frustrated they couldn’t pay in cash.

“When I opened my business there were so many balls rolling I didn’t really reflect on how I could be isolating a group of people in my community by not accepting cash,” she says. ”As a responsible business owner and someone who wants to share my goods and services with all socio-economic levels, I felt it was my duty to start accepting cash.”,,

Shelle Santana is an assistant professor of business administration in the Marketing Unit at Harvard Business School.

To continue reading, please go to the original article at

https://hbr.org/2019/07/is-the-u-s-on-its-way-to-becoming-a-cashless-society