In an increasingly urbanized world, many cities have introduced smart-city initiatives to improve multiple parameters. Digital payments technology is one part of the equation and is estimated to generate direct net benefits of $470 billion per year.
Payments using a card, app, or website are transparent, clean, and usually effortless. Since these modes of digital payment make it easier to send and receive money, they also contribute to an increase in economic activity and generate a wide array of financial and non-financial benefits.
No More Cash Handling Costs
Small and medium-sized businesses reportedly pay tens of billions of dollars annually on cash handling expenses. Eliminating cash payments also eliminates the costs associated with handling and transporting cash.
Cashless businesses no longer have the need to pay banks deposit fees to process cash and coin. This also eliminates the expenses of needing to pay for armored vehicles to transit money. Lastly, and most importantly, cashless businesses don’t require employees to count and manage registers. Instead, the employees can focus on bringing in more businesses by meeting the needs of the customers.
Faster Transactions, Happier Customers
Many businesses that have gone cashless have cited faster transactions and increased store throughput to be the key advantages. A few notable examples of such businesses as mentioned by the Federal Reserve Bank are:
- Atlanta’s Mercedes-Benz Stadium found that its transition to exclusively card and mobile payment transactions not only reduced end-of-day reconciliation time but also resulted in quicker transaction times and lower wait times for customers.
- Salad chains Tender Greens estimates that cash transactions are four to five seconds slower than card transactions, and Sweetgreen found that its cashless locations processed 5 to 15 percent more transactions per hour.
In high-volume businesses, these faster transactions can play a pivotal role in generating revenue. Faster transaction time means increased customer satisfaction, fewer errors in making change, and overall increased revenue.
The Downside Of Going Cashless
While market trends and cost savings make going cashless an attractive option in lieu of cash payments, there are reasons not all economies can go cashless.
While the popular perception, at least in the U.S. is that no one uses cash anymore, 6.5 percent of U.S. households were unbanked and did not have access to financial services in 2017. This translates to 8.4 million households that did not have a bank-issued debit or credit card.
Add to this the ‘underbanked’ households that have a bank account but use other financial services like money orders, payday loans, and check cashing, the number of people that cannot avail cashless payments rose to 24.2 million households i.e. nearly 19 percent of the U.S. population.
Other consumers may trust or only have access to cash when they’re making transactions. This includes people who choose to exclude themselves from the banking sector and value anonymity at the point of sale. In its 2017 National Survey of Unbanked and Underbanked Households, the FDIC found that one-third of unbanked households don’t trust banks, and others avoided banks because of privacy concerns or unpredictable banking fees.
Cashless payments such as cards and electronic payments heavily rely on the availability of card or cellphone networks. Network disruptions and breaches in data security can all render cashless modes of payment as unreliable or unpredictable.
Whether consumers choose to use cash or are compelled to use cash in case of network outages, cashless businesses deny these customers the opportunity to participate in a certain segment of the economy.
We’ve seen that the topic of cashless businesses is a complex one. On one hand, it can make economic sense for businesses to go cashless in terms of faster transactions, fewer opportunities for theft, and elimination of handling costs; on the other hand, the move away from cash can lead to the financial exclusion of certain consumers.