Restaurants, stores, and stadiums around the country have stopped accepting cash as payment and instead are requiring patrons to pay with cards or digital devices, although some have already abandoned the practice in response to a public backlash.
Businesses that have gone cashless say they did so in response to concerns about security (theft of cash), a desire for greater efficiency (faster transactions), and consumer demand as most of their clientele pays electronically. Opponents, however, cite the possible discriminatory impact of this practice, saying that it violates the Civil Rights Act because unbanked consumers—meaning those who do not have a bank account—are more likely to be members of minority groups.
According to the Federal Deposit Insurance Corp., just 6.5 percent of households are unbanked, but research by Pew shows that these Americans are more likely than those with bank accounts to pay primarily with cash. These households also tend to have the fewest payment alternatives.
Policymakers around the country have reacted swiftly to the changing payments market. In Massachusetts, where lawmakers banned cashless businesses in 1978, legislators have been working to repeal the prohibition. Meanwhile, New Jersey, Philadelphia, and San Francisco acted to prohibit cashless storefronts last year, and similar proposals are under consideration in the District of Columbia and New York City.
In response to this trend, Democrats in Congress proposed two bills, the “Cash Always Should Be Honored Act” and the “Payment Choice Act of 2019,” both of which would require storefront retailers—those with a physical location—to accept cash as legal tender. The bill introductions elevate the debate to the national stage. If cashless retail continues to spread, policymakers elsewhere will be challenged to decide whether or how to intervene.
With the advent of new payment platforms and electronic accounts tied to smartphones, some businesses are finding it easier and perhaps safer to eliminate the use of cash, a trend likely to continue spreading. But although many unbanked consumers and those who primarily use cash have access to electronic forms of payments, that access often comes with additional costs and different concerns about financial protection and security.
Cash made up nearly 40 percent of in-person transactions in 2017, according to the Federal Reserve, and, although its usage continues to decline, cash is still the most widely used payment type. Further, a Pew survey of consumers in 2018 about their payment experiences found that 78 percent used cash at some point in the previous month; for 14 percent (more than 35 million adults), cash remains the primary method of payment.
According to the survey, some groups are more likely than others to use cash, including minorities, households with incomes under $50,000, and unbanked consumers. For example, though white consumers are more likely to report some cash use in the past month, minorities are nearly twice as likely to say they primarily pay this way. In addition, 23 percent of households with incomes under $50,000 say they primarily pay with cash compared with just 10 percent of households earning $50,000 or more per year.
Consumers without bank accounts do have payment options other than cash. Research from the Federal Reserve shows that although most of the unbanked depend on cash to pay their bills, 27 percent also use prepaid cards. Prepaid cards work like debit cards and carry the same consumer protections against loss of funds, but they are not connected to a bank account. They are widely available from convenience stores, banks, or post offices and can generally be reloaded at any of these locations. Research by Pew shows that many unbanked prepaid cardholders use the cards as substitutes for checking accounts: More than 40 percent receive direct deposits from employers to their cards, and 75 percent reload them regularly.
Some businesses that have transitioned to cashless operations, such as stadiums and airlines, have installed cash-to-prepaid kiosks, which could help address the disparate effects of banning cash. These kiosks enable consumers to load money into prepaid accounts to use anywhere card payments are accepted. However, unlike cash, prepaid cards can carry fees to purchase, reload, and withdraw funds or to call customer service, among other activities. As a result, cash-to-prepaid kiosks can reduce the impact on those who use cash only if the cards are free to obtain and use. In addition, consumers view prepaid cards as less protected than cash and therefore may feel unsure about using them, according to the Pew research.
Despite business community concerns about security, consumers across demographic groups prefer the protections that come with cash, compared with other payment methods: A third of those who made a transaction in the past year rated cash as “perfectly protected” against payment issues, such as being charged twice or not receiving a good that was paid for, more than any other payment type. This is likely because, unlike electronic payment methods, personal and financial information cannot be accessed and used to steal funds. Still, there is no recourse if cash is lost or stolen the way there is for credit, debit, and prepaid cards, which is likely why a quarter of Americans also see cash as providing no protection at all.
Millions of consumers rely on cash to make purchases, either by necessity or by choice. If businesses continue to adopt cashless practices, the ranks of policymakers considering whether to intervene to preserve cash as a payment option for those who have few alternatives are likely to increase as well.
Nick Bourke is the director, Tara Roche is a manager, and Rachel Siegel is a senior associate for The Pew Charitable Trusts’ consumer finance project.
This article was previously published on pewtrusts.org and appears in this issue of Trust Magazine.