Measure Twice, Cut Once
Mariam Furmanau | Have you heard, millennials are killing cash. First, they went after diamonds and cereal, then – casual chain restaurants, napkins, golf, relationships, home ownership, and now this. But to be completely fair, millennials aren’t the ones actively pushing cash off the proverbial ledge; they are more akin to bystanders actively cheering as cash is slowly succumbing to digital methods of payment (as it has been for decades, incidentally.)
So then what is really happening to cash and what does going cashless mean for… well, everyone? After all, no one in the marketplace operates in a vacuum; the decision to go cashless and its repercussions, regardless of who drives it, consumers or businesses, will have a sweeping effect over everyone involved.
Illustration by Varvara Grankova
It's a trend, not a fad
Going cashless is a global trend driven by many forces, of which millennials are just a modest component. Looking around the globe we see the cashless trend taking root in a variety of ways. In China, some declare the death of cash as mobile pay (via apps like Alipay and WeChat Pay) is taking over the country, spreading into the rural areas. The East Asian and Pacific region is leading the trend in switching to mobile payment, but India, Africa and Western Europe are deftly following in its steps.
What might be concealing this global transformation is the fact that the process of going cashless is unique to every country. It is tied to a host of historical, geopolitical, technological, and economic factors. It is not even the case that the countries with the most developed financial infrastructures are transforming faster. India and China, for example, are moving towards a cashless future at a fairly similar pace to that of Australia and the US.
Speaking of the US. Here, in the union of fifty states that are quite diverse culturally, politically and technologically, going cashless may not be as seamless. Unlike a smaller, more homogenous Sweden where cash now accounts for less than 2% of its GDP, in the US cash adds up to more than 13% of the GDP. Despite that cash is governed by the Fed, the use of cash is not federally mandated. So for fifty states there are fifty sets of laws that determine how cashless systems, at least on the POS level, can be implemented. Not an issue in Sweden, I would think.
But in the US, cash has become collateral damage of online banking ever since the latter was created in early 1980’s. The damage escalated when the banks and credit card companies alike started offering perks for using cards. Offers like 2% cashback on all purchases, points for every dollar spent, no blackout dates for travel booked with the said points, rebates, early access to trendy venues, etc., were mostly created to lure customers away from the competition, but ended up promoting digital transactions over the use of good ol’ cash. And the actual cash-specific benefits, such as banks waiving monthly fees if a certain balance was kept, were created to deter customers from using cash! As we see banks release more and more features and offers, the use of cash will only decrease.
Moreover, all of the recent innovations created to facilitate money changing hands have moved us further away from using cash. Just think of Apple Pay, Google Pay, apps like Venmo, Zelle, and Splitwise, the list goes on. Visa has waged an outright war on cash by offering restaurants $10K reward for going cashless as part of their Visa Cashless Challenge. Amazon, Starbucks, McDonald's, Wendy’s, Sweetgreen, Two Forks, Dig Inn and many other (mostly fast food) retailers have either gone fully cashless or added self-pay kiosks that only accept credit and debit cards.
And this is where millennials start cheering extra loudly on the sidelines. This unique generation is the largest adopter of the aforementioned innovations, although actually going cashless may not be their main reasoning. Rather it is the added convenience and unification of basic utilities into a single device – a phone. So, no, millennials are not killing cash, but they sure don’t mind that it is happening.
The shrinking habitat of the reluctant consumer
On a micro level, the practice of vanishing coins and bills has a very real effect on everyday commerce. For consumers, the effects of going cashless are very personal, such as learning to control one’s consumption, upgrading their devices to be able to join the cashless crowd, finding the best digital payment options that fit their personal needs, getting over personal phobias and mistrust of the Internet, just to name a few. But the immediate reality is clear – go digital or risk missing out on a large number of economic advantages.
There remain 7% of US households (about 9 million) that are unbanked, i.e. conduct all of their business in cash. For this minority, going cashless is much easier said than done. Other than using temporary top-up cards issued by check cashing places or gift cards from major credit card companies, there aren’t a lot of viable choices, if opening a bank account is not an option. However, banking for the poor is a hot topic and it is likely that we will soon see the kind of technological breakthroughs, blessed by the banking system, that will bring in the last piece of the puzzle to a cashless society.
An act of hedging and good timing for businesses
Implications for businesses are more nuanced. Most companies already accept credit cards and/or a variety of digital methods so a cashless future is not completely game-changing. Moreover, not all industries are created equal in terms of how cash is used. Large ticket items like heavy machinery, cars or furniture are rarely purchased with actual cash. The fast food industry (both low and high cost) is greatly affected by the move to cashless processing. So the benefits and disadvantages of going cashless can be studied on its examples.
The advantages of going cashless for a retail business are immediate and absolute: quicker checkout processes, shorter lines, leading to a turnover increase. As an example, UK food chain Tossed saw a turnover increase of almost 14% since they went cashless. Other important benefits are quicker end-of-day closing and a time saving from not having to perform all of the cash-handling procedures like counting, getting change, and making bank runs. In fact, Leo Kremer, co-CEO of Dos Toros estimates that for his business this time saving is about 2 hours per day. That is 14 hours per week that could now be spent on things like training, customer service improvement, and inventory control. And finally, there is less theft and a reduced likelihood of a robbery.
There remain a few challenges, some of which are being tackled even as we write this piece. There is a higher cost of sales, as merchant fees are now levied on all transactions. That said, we placed a call to Square, one of the more popular POS systems that offer credit card processing services to inquire if going cashless would qualify a business for lower processing rates. And apparently it does! This cost is further offset by the increased turnover and reduced hours necessary to manage cash.
Another difficulty that is oftentimes taken for granted is stable Internet access. In the not so distant past, loss of Internet connectivity meant getting out a manual card swiping machine. However, these days, processors like Revel, have adjusted and now allow processing sales even if there is no Internet. Credit card information is collected, encrypted and stored in the POS system until Internet connectivity is restored.
Of the as yet unresolved challenges, some of the most critical ones are linked to fraud. Stolen credit cards numbers, dishonest chargeback claims, identity theft, these are all Medusa-like by-products of a digital age. In addition, there are the daily confrontations with reluctant customers who will not or cannot pay with a credit card. These are not just the unbanked millions (the elderly, poor and immigrants making up the large percentage). It could also be individuals who refuse to feed into the “big brother” mentality of a banking system, foreign tourists, and people who simply do not carry anything but cash.
So, should your business go cashless or not?
It depends. Unless something above spoke to you so strongly that only under the threat of persecution will you have your business go cashless, you will need to do a bit of research. We did some of it for you! Here's a list of points to consider:
1. Know what percent of all client payments are in cash and compare it to the national average for your business type. Sure, your business location, product offering, and average price point all have an effect on the distribution of payment types. For instance, businesses selling luxury items see a higher usage of American Express. But knowing the industry benchmark does give you a helpful reference point.
2. Study your customers to gauge their reaction to your business going cashless. This is not just asking your clients if it’s OK for your business to go cashless. This also includes knowing their demographics, age and residence being the more important points. Going cashless makes transactions more efficient, which in theory could boost your revenue. But if a big portion of your customers are likely to be reluctant adopters, doing away with cash might lose you enough of them to cancel out any potential gains.
3. Have more than just a simple credit card processing as a payment option. If you are serious about cashless, it won’t pay to do it halfway, pardon our pun. You want to offer as many of the the main cashless payment options with a goal that at least one would work for each customer. These days, most major processors like Square would also let you accept Google Pay or Apple Pay at no additional cost to the business or the customer other than a normal credit card processing surcharge. But the tech landscape is changing every day, so giving a call to your current processor may yield other no less interesting solutions.
4. Post signs everywhere and be ready to comp. Until cashless becomes a predominant modus operandi, comping clients who cannot pay with a card/digital wallet might become an occasional practice of good client service, as well as a cost of being so darn progressive. But to minimize the number of these instances, do post a sign that you do not accept cash payments on the front door and by the register.
5. Understand fraud. With cashless processing come new kinds of fraud. Require additional security (ID and CVV checks), address each chargeback, know how your own employees may circumvent the POS settings. Just because you are no longer processing cash does not mean the world is a nicer place. And understand that until cashless becomes more mainstream you are more or less in a cowboy territory without much support. Our call to Square requesting any helpful documentation on going cashless yielded nothing. But they did say it would be great if we suggested this topic to their customer support.