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At stores across the country, paying in cash is more difficult than it used to be.
During the first few months of the pandemic, fear that cash could transmit COVID-19 spurred many retailers, if they remained open at all, to refuse cash and adopt new payment technologies. For a while over the summer, the problem was so acute that it led to a shortage of coins — not because the coins didn't exist, but because so few were circulating through the system.
Whether a future without cash is a utopian or dystopian one depends on who you are and what you want. For many fintech companies, the accelerated adoption of digital payment methods is a good thing. For the millions of Americans without a bank account, it could be a problem. Just as the pandemic has exposed the racial and socioeconomic fault lines that divide those who have the resources for remote schooling and health care from those who don't, fear of cash has done the same for access to the U.S. financial system.
Many retailers are accepting cash again, but the accelerated adoption of cashless technologies appears irreversible. The share of cashless businesses on Square's platform jumped from about 6% in February to about 14% in August, an increase over seven months that the company estimates would have taken at least three years without the pandemic. For a brief period in April, the share was as almost as high as 24%.
Last week, the FDIC released a report that revealed more than 5% (about 7.1 million) of American households still do not have access to any checking or credit accounts, including about 14% of Black households and 12% of Hispanic ones — compared to under 3% of white Americans. Reports from previous years showed that these households tend to rely on cash instead, so when many people began to believe that cash could carry the virus, it created a problem for unbanked Americans.
"All of this growth has put two populations into more dangerous categories: the elderly and the poor," Subodha Kumar, a professor who studies fintechs, blockchain and supply chains at Temple's Fox School of Business, told Protocol.
A longstanding problem
Kumar explained that older populations can sometimes have more difficulty adapting to app- and phone-based payment technologies, and poorer groups usually have no payment alternatives if a store refuses to accept cash. Because the share of unbanked households is much higher for Black and Latinx populations, those same groups face the most limited access when stores refuse to accept cash.
The push for cashless-only retail entered the national conversation in December 2016, when salad chain Sweetgreen announced it would no longer accept cash payment at any of its stores. The company argued at the time that cashless tech was innovative, more secure from burglars and more efficient. Amazon's Go stores, which first launched to the public in Seattle in 2018, are also premised on the concept of touchless, cashless payment, although they do offer an option to pay in cash. When cities like New York introduced legislation to require businesses to accept cash, the National Retail Federation defended businesses' right to decide what types of payments they were willing to accept.
Yet in 2019, Sweetgreen (based in Philadelphia, one of the municipalities that now require retailers to accept cash), reversed its cashless plans, publicly recognizing that its policy had reduced the chain's accessibility and pledging to accept cash everywhere. New York City, San Francisco, Philadelphia and New Jersey are some of the local and state governments that now require retailers to accept cash. An old law on Massachusetts' books just so happens to require that cash be accepted everywhere, though it was passed long before there were viable digital alternatives: 1978.
But when the pandemic hit, refusing cash became a practical public health decision, rather than an exploration of the future of payments or financial access. "Three major things happened because of COVID-19," Kumar said. "Lots of businesses stopped taking cash altogether; online businesses and shopping grew in popularity; and everyone avoided using coins and cash."
The abrupt lack of access for the cash-relying population caused enough problems that regulators started to pay attention. In July, the Federal Reserve created the U.S. Coin Task Force to increase coin and cash circulation. "Those who depend on cash as a form of payment are hit the hardest when businesses can't accept cash," officials wrote in a task force report in July urging businesses and consumers to continue to accept cash.
Legislators have looked into solving cashlessness problems before and during the pandemic. New Jersey Rep. Donald Payne and Sen. Robert Menendez introduced the Payment Choice Act in 2019 and 2020, legislation that proposes to require retailers to accept cash. "I think the pandemic has accelerated the cashless movement, but it's one thing to temporarily stop accepting cash for safety reasons, and another to make that a permanent change," said Lauren Saunders, the associate director at the National Consumer Law Center, which backs Menendez and Payne's bills. "Cashless policies should end when the pandemic does," she said.
Learning from the rest of the world
But even if every store is legally required to accept cash, the slow progress toward a mostly digital financial system feels inevitable. New apps that allow for direct person-to-person digital payments have been adopted so rapidly over the last couple of years that the FDIC had to change the way it conducts research for its report. In previous years, the research has quantified a section of Americans as "underbanked," meaning they rely on nontraditional financial services outside of bank accounts — but not just cash. Using those methods used to indicate a problem accessing the traditional financial system, according to the report's authors, Leonard Chanin, deputy to the chairman for consumer protection and innovation, and Karyen Chu, chief of the banking research section at the Center for Financial Research at the FDIC.
But apps like Venmo, Cash App and Zelle (which is backed by most major U.S. banks) are nontraditional financial services. Some of the services they provide don't require a credit or debit account, but that doesn't mean their users have trouble accessing the financial system. (I, for example, use all three, and in no world do I fit the traditional description of what it means to be "underbanked.")
This should be fantastic news: These apps are changing the ways people can spend and save money, opening the door for nontraditional users without bank accounts. But the data from the latest FDIC report doesn't reflect that. More than 30% of Americans use P2P payment apps, but only 3% of Americans without access to a smartphone or internet do. Unlike traditional bank accounts and financial services, users of P2P apps skew wealthier (with an average income of about $75,000 or more per year), whiter and more educated than the American population as a whole.
Other countries have travelled further down the road to a completely cashless society. Sweden has grappled with the problem for years. Widespread adoption of Swish, a digital payment technology designed in partnership with the country's six largest banks and the Central Bank of Sweden, has lowered the amount of cash in circulation to around 1% of the Swedish GDP (the lowest level in the world, compared to 8% in the U.S.), according to a report from the Swedish federal banking system.
Despite better internet access and a smaller, more prosperous and homogeneous population than the United States', Swedish federal bank leaders there have said that some people still rely on cash, and that the country's banking system is not yet designed for a world without it. After it became clear that banks and retailers were becoming less inclined to provide and accept cash because of Swish's rising ubiquity, the Swedish government passed a law to guarantee certain cash access rights for all. The law ensured that people could retrieve cash from banks and ATMs and that stores had to accept it.
Anay Shah, the vice president of global business for Tala, a consumer credit product offered in Kenya, the Philippines, Mexico and India, said he believes that widespread adoption of cashless technologies is possible without the discriminatory effects seen in America. Cash won't ever go away completely, but it can be made much less necessary, he said. "The best example in the world is Kenya," he said. "The ubiquity of the solution is unparalleled to anything we've seen in the world." According to Shah, Kenya's M-Pesa mobile wallet system is the best example of how banks, the government and telecommunications companies can work together to produce an easily adoptable solution for a broad swath of the population. Because of the ubiquity and power of the telecommunications companies, their buy-in made it easy for everyone who accesses their services to access M-Pesa, creating a universal and accessible system.
Payments that don't require a bank account but do require a phone have worked better in other parts of the world because the technological divide is less severe, Kumar said. "It was the curse of technology in the U.S.," he said. "Advanced technology created a digital divide."
Shah and Kumar both said they believe the American financial system can learn from other country's experiments. "Federal regulators need to think of some of these things, which look much less sophisticated than what we have here, but can really solve the problem," Kumar said.
Anna Kramer is a reporter at Protocol (@ anna_c_kramer), where she helps write and produce Source Code, Protocol's daily newsletter. Prior to joining the team, she covered tech and small business for the San Francisco Chronicle and privacy for Bloomberg Law. She is a recent graduate of Brown University, where she studied International Relations and Arabic and wrote her senior thesis about surveillance tools and technological development in the Middle East.