- Hass Holmberg/TT News Agency/Reuters
- Cashless stores have been a polarizing retail invention.
- They have been lauded as innovative and convenient in addition to being derided as sowing inequality.
- Fears over the exclusionary nature of cashless stores prompted a spate of legislative bans against them.
- Alex Bau, the Federal Reserve’s director of data and policy analysis of the cash product office, said that nowadays, retailers seem to be more keen to “meet the customer where they’re at” when it comes to payment options.
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It’s fair to say that, on the surface, cashless retail stores have undergone a bit of a rise and fall.
Cashless stores may have once seemed a futuristic innovation, but over the past few years they’ve ended up ushering in a backlash against inequality rather than a retail revolution.
But that doesn’t mean that cashless technology was a flash in the pan. Retailers are still interested in cashless options in terms of cutting costs and meeting consumer needs, even if a fully cashless environment remains elusive and unrealistic.
The cashless backlash
Around four years ago, a cashless retail experience seemed in sight. Significant doubts about a cashless future lingered, but by 2017 FDIC had found that cash represented only 30% of all payments, according to the Harvard Business Review.
Some big names ended up coming to the forefront to take up the cashless mantle.
- Fabiana Buontempo/Business Insider
Sweetgreen, a salad chain that was early to adopt a cashless model, also rolled back its goals. In 2016, cofounder Jonathan Neman told Business Insider that by going cashless the company was working to “simplify things.”
Then the first ever Amazon Go store opened its doors in January 2018, offering shoppers a fully cash-free, checkout-free experience. Amazon reportedly envisioned opening these cashierless stores by the thousands. Of course, Amazon’s disruption of payment methods was a two-way street. In September 2019, the online retail giant teamed up with Western Union to allow more cash-dependent customers to shop online using cash.
But the dark side of the cashless trend would shortly erupt into full view.
In 2018, Pew surveyed 1,164 individuals who had made a payment in the past month, to weigh the differences between different groups’ cash use. It found that 65% of people who said they primarily used cash were unbanked, 25% made less than $25,000 a year, and 20% were minorities.
“Non-acceptance of cash could potentially marginalize those that have limited access to the financial system or mobile technological devices,” researchers from the Congressional Research Service, a public policy think tank run through the Library of Congres, wrote in a 2019 report.
Thus, retailers opting to go cashless were effectively denying service to consumers without access to banks, as well as those from poorer households and those from minority backgrounds.
Legislators in major cities across the United States began taking aim at the cashless stores. New York City, Philadelphia, San Francisco, and the state of New Jersey have all nixed cash-only stores, regulating that retailers must accept cash from paying customers. NPR reported that Washington, DC, was weighing a similar bill.
The results of the legislative tide turning against cashless stores were rather definitive. Amazon Go dropped its exclusively cashless model, and it currently accepts cash at all locations. Sweetgreen reportedly began accepting cash at all locations at the end of 2019.
‘Meet the customer where they’re at’
Alex Bau, the director of data and policy analysis of the cash product office of the Federal Reserve System, spoke to Business Insider about the cashless trend.
“We do continue to see interest in retailers or merchants in managing or reducing the cost associated with cash handling,” Bau said. “We haven’t necessarily heard of an increase in the number of cashless businesses, but the cost factor is always in their mind.”
The Federal Reserve Bank of San Francisco published a note in August 2019 called “Cash Me If You Can: Impacts of Cashless Businesses on Retailers, Consumers, and Cash Use.” It went over a number of pros and cons associated with going cashless. The benefits of a cashless approach included reduced cash handling costs, inoculation against theft, and faster transactions for consumers.
On the flip side, the note found that cashless businesses promoted outright financial exclusion, made life more difficult for consumers with a preference for cash, and were tied to retailers racking up credit card fees.
The 2019 report from the Congressional Research Service added that cash provides financial safety and a guaranteed protection of privacy for those unwilling to establish bank accounts.
Bau said that cash tends to be the preferred method of payment during events like snowstorms, when there’s the possibility that the power will go down or a payment network will crash.
- Crystal Cox/Business Insider
Whether or not going cashless saves money – given the reality of card companies’ fees – tends to depend on the retailer and how “streamlined” its operations are, according to Bau.
Given the legislative backlash and the mixed results offered up by going cashless, it would appear that retailers are at a fork in the road when it comes to payment methods. But that doesn’t mean that cashless technology is about to be dumped. The 2019 report from the Congressional Research Service noted that cash’s “hegemony as a payment system appears to have come to an end, as electronic payment systems have gained popularity, and the ubiquity of cash acceptance for in-person purchases also seems precarious.”
Cashless options within stores still pose an opportunity that retailers are looking to explore. Bau said that in his office’s discussions with retailers and merchants, businesses are typically looking to best accommodate the customer.
“In general, retailers want to meet the customer where they’re at for a payment option,” Bau said.
So while a cashless society might be unfeasible at the moment, it would appear that, for some businesses, adopting cashless technology while also maintaining a baseline ability to accept cash may be the strategy.
But that’s not to say that cash is about to disappear.
Cashless stores are in fact just the latest iteration of payment options to pop up over the course of financial history. In the beginning, there was cash. Then the check popped up, following by the inception of the debit card and its cousin, the credit card.
Bau said that while the popularity of certain “payment instruments” may spike or wane, they rarely fade away entirely. The same goes for cash, even as retailers weigh unrolling a more omnichannel approach to payments.
“When we talk with retailers, they don’t necessarily see cash as a a payment instrument for the consumers going away,” he said.
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