If you’re younger than 70 years old, you likely don’t know a world without credit cards. Since their implementation in 1950, paying with plastic has become a vital part of society, resulting in the 123.5 billion non-cash payments that are now made a year. Add in the newer and even more convenient forms of payment like Apple Pay and Venmo — some wonder if cashless businesses are the future.
For certain businesses, it makes sense to leap into a cashless future today. After all, only one in four people carry cash on them, and only accepting cashless payments means more efficiency, a decreased risk of theft, and more spending.
Yet becoming a cashless business is not so simple. Depending on your customer base, going cashless can alienate and even anger large portions of your customers. If you haven’t accepted credit cards before, you’ll need a merchant services provider already set up to process payments, and be prepared to pay the fees. On a larger scale, there are some that argue becoming a cashless society will put too much power into the hands of the three or four large card companies.
Whether or not you should go cashless will vary largely on your industry, customers, and how many transactions are already made a day with a card. You’ll have to weigh the benefits of eliminating cash against the drawbacks to decide for yourself if cashless is right for your store.
Keep reading to learn what you need to consider before eliminating cash sales, or skip to the infographic summarizing the main points.
A Brief History of Cashless Businesses
The relationship between card payments in small businesses has always been precarious. Many of us have likely accidentally tried to pay at a small local business, only to discover they don’t accept cards. Or if they do, there’s a minimum purchase amount enforced.
This is because of the interchange fees charged by credit card merchants. The fees typically take a percent of a transaction, usually 2–4%, and can cause a business to actually lose money on small purchases.
However, the popularity of cash has continued to decrease over the last ten years, as more convenient, secure, and accessible card payment options like chip-readers and Square have emerged in the United States. Both credit card companies and large businesses have an incentive to push initiatives that support a cashless society, as they stand to gain from this financially.
In 2017, Visa launched their Cashless Challenge for restaurants, offering the business $10,000 if they stopped accepting cash. For card companies, less cash means more money made on transaction fees.
In 2018, Starbucks tested its first cashless location in Seattle to determine how cashless payment affects their business and customer experience. Since they have a popular pre-order app, and specialize in efficiency, eliminating the time-wasting exchange of bills is a next natural step.
If these cashless operations feel sudden, keep in mind the United States is behind the trend in cashless purchases compared to the rest of the world. With only 92% of adults having made a cashless payment, the US trails behind countries like Sweden, where 99% of adults have made a cashless payment. Great Britain, Canada, France, and Germany also come out ahead of the US in cashless payments. For many, moving towards a cashless society isn’t a thing of the future — it’s simply catching up.
Ultimately, each year the number of non-cash transactions increases. Last year saw a 10% increase from the previous year. While an entirely cashless business isn’t common now, it certainly could be in just a few years time.
Good Reasons to Go Cashless
For the business owner, there are plenty of reasons to eliminate cash in-store. For the most part, it’s just more convenient for the card holder and clerk. It eliminates much of the hassle that’s typical with more traditional methods of payment.
Reduced Operation Expenses
With cash comes dealing with and moving a physical item. Employees need to be trained to use a cash register, make change, and count their drawers at the end of the day. All of that cash must be accounted for, and an armored truck must pick up the bills. Some estimates put all this extra time lost at a cost of $10,556 a year. With only electronic transactions, it is also easier to automate and track sales and record trends in purchases and products.
Provides More Security
Though only 9% of small businesses experienced a burglary or robbery last year, many people would feel safer if they didn’t keep any cash on hand. Even if you aren’t concerned about robbery, eliminating your cash in store will prevent employees from stealing from the cash register.
Improves Customer Experience
Since accepting a card payment takes much less time than cash, your business’s efficiency at the checkout could increase tremendously once you eliminate cash exchanges. For businesses that frequently see long lines and impatient customers at peak times, switching to a card-only system can vastly improve their experience. With excellent, fast service, your customers will be more likely to tell others about your business and return themselves.
The Problem with Cashless Stores
For some small businesses, the benefits they’ll see just isn’t worth losing out on potential customers or paying extra fees. Plus, going cashless can have a large impact on society overall, that some fear is negative.
Excludes Potential Customers
Cashless stores can create a backlash, because it can exclude those that don’t have bank accounts, which is around 7.5% of the population. This is additionally problematic because these people tend to be poorer than card and non-cash users. According to Pew Research Center, low-income adults making less than $30,000 were four times as likely to say they made most or all of their purchases with cash, compared to those making more than $75,000.
Comes with More Fees
Already the fees imposed on businesses for swipe-based transactions is an estimated total of over 70 billion a year. Switching to an all-cash business may allow you to serve more customers, but you’ll have to consider whether you actually come out on top financially.
There’s also a larger concern that in a cashless society, the top ten credit card companies, which between them already hold a 90% market share, may raise the transaction fees further. The United States currently has no cap to the fees they can charge, and though the average fee is only around 2%, this seems massive considering the European Union caps fees at just .3%.
Creates Privacy Concerns
While you may eliminate the risk of thieves stealing physical cash, your business may become a target for hackers. Using cash apps, contactless payment, and swipe payments creates multiple new ways for others to steal bank account information.
Considerations Before You Go Cashless
Aside from the benefits and drawbacks of going cashless, there are other things you should take into account before eliminating cash. For one, not every city allows a cashless business. Philadelphia is one of the first to ban them this year, and it’s possible more cities will follow.
Specific to your business, you should determine the size of payments customers are typically making. About 60% of in-person payments under $10 are made with cash, but that percentage drops rapidly the larger the purchase. If your sales are always under $25, you may be better off sticking with cash. You’ll also need to consider how much cash typically makes up in earnings, and weigh for yourself on an acceptable percentage before switching.
Additionally, there are certain types of businesses where people come to expect being able to use cash. For example, 32% of people prefer using cash to a debit or credit card when at a coffee shop.
Finally, the issue isn’t black and white, and the solution doesn’t have to be, either. It’s possible to encourage card payments in your business, without altogether eliminating cash. You can incentivize card payments with rewards, or even simply use signs that say “card encouraged.”
Still not sure what’s right for your business? Check out our infographic for a quick summary of what you need to know:
- Experian.com. “The History of Credit Cards“
- FederalReserve.gov. “The Federal Reserve Payments Study: 2018 Annual Supplement“
- NYPost.com. “Americans Barely Carry Around Cash Anymore“
- Money.CNN.com. “Visa Offers Restaurants $10,000… If They Stop Accepting Cash“
- SeattleTimes.com. “Starbucks Tests No-Cash Policy at Downtown Seattle Store“
- NYTimes.com. “Will Cash Disappear?“
- FraudFighter.com. “Are you Wasting Time Counting Cash Registers?“
- SmallBizTrends.com. “Nearly 9 Percent of Small Businesses Suffered a Burglary or Theft Last Year“
- Slate.com. “No Shirt, No Swipe, No Service“
- PewResearch.org. “More Americans Are Making No Weekly Purchases with Cash“
- NRF.com. “Retailers Call Supreme Court American Express Ruling ‘Missed Opportunity’ to Rein in Billions of Dollars in Credit Card Fees“
- CreditCards.com. “Credit Card Market Share Statistics“
- Wikipedia.org. “Interchange Fee“
- WSJ.com. “Philadelphia is First U.S. City to Ban Cashless Stores“
- CreditCard.com. “Payment Method Statistics“
Meredith Wood is the founding editor of the Fundera Ledger and a vice president at Fundera.
Meredith launched the Fundera Ledger in 2014. She has specialized in financial advice for small business owners for almost a decade. Meredith is frequently sought out for her expertise in small business lending and financial management.