When Francois Reihani opened La La Land Kind Café in Dallas three years ago, he knew immediately that it would be cashless.
“The main reason was for sanitary purposes,” Reihani said. “I’m a bit of a germaphobe, and cash is a very dirty thing. I wanted to keep it away from where we prepare food and drinks.”
Fewer than two miles away at the edge of Dallas’ nightlife neighborhood of Deep Ellum, Sky Rocket Burger had a different reason for refusing cash earlier this year. The place had two break-ins when the register was taken both times.
A nearby pizza joint, Serious Pizza, a common late-night spot wedged into a string of bars, has also switched to cashless payments in part to move the line of club goers along at a quicker pace.
Whether the initial reason for business owners to go cashless was for sanitary reasons, safety or speed, the COVID-19 pandemic has undoubtedly kept more dollars and cents at home. The acceleration of the trend has raised questions about whether Americans will catch up to their counterparts in Europe and Asia who are barreling to a more digital future. But it’s unclear whether the structural and societal hurdles will prevent a completely cashless society from taking root.
Still, the trend is glaring.
Just 19% of purchases were made in 2020 with cash, down from 26% the year before, according to a survey of roughly 1,500 consumers conducted by the Federal Reserve in October of that year. Ten years earlier, the use of cash was close to 30%.
And the decline is seen across all age groups. Among those aged 35 to 44, for example, the use of cash dropped from 32% in 2016 to 16% of purchases last year, according to the Fed. Those 65 and older, also, reported using cash on just over one-quarter of their purchases, down from about one-third in 2016.
But the majority of Americans remain skeptical that these numbers will drop to zero.
According to a survey conducted by Wakefield Research and commissioned by Square in early 2021, one year after the pandemic took hold, about 68% of business owners and 73% of consumers said they believe the U.S. will never become a completely cashless society.
But of those who do believe in it, 22% said it will happen in the next 10 years, up from 13% in 2019. Reihani, at La La Land, is one of them.
“We will absolutely be cashless one day,” Reihani said. “It will definitely happen.”
Where cash is not king
Sweden began pushing to eliminate cash in earnest beginning in the 1990s, and the impetus at the time was to find a way to thwart a rash of robberies. So much progress was made that until a few years ago those experiencing homelessness who once asked for change began carrying inexpensive card readers. Today, they take mobile payments on the street, said Jonas Hedman, professor in the department of digitization at the Copenhagen Business School.
“There are no queues in front of ATMs in Sweden any longer,” Hedman said. “They are the most dead spot you can find.”
The Nordic country has been held up as a closely watched bellwether for its progress toward a cashless economy. And the country has a centuries-old reputation for its forward thinking in banking.
Stockholms Banco is known for issuing the first banknotes in Europe in the 17th century. That innovation was marred somewhat when, less than a decade later, the bank overextended its note issues and went under. The bank’s founder, Johan Palmstruch, was sentenced to death over the scandal, though the punishment was later commuted to a life sentence.
Today, the country is pioneering away from its own paper invention into a digital world.
In 2010, Swedish Central Bank Risbank found that about 39% of Swedes said they used cash for their most recent payment. In 2020, the same poll found that only 9% reported using cash.
Hedman said a key threshold will be reached when fewer than 7% of all transactions involve cash. Among the holdouts are the elderly who still prefer physical currency. Some grocery stores, pharmacies and liquor stores also still deal primarily in cash.
Using the increasing cost of handling cash and the decline in its use, Hedman and his team of researchers have calculated when Sweden will hit the 7% benchmark down to the day: March 24, 2023.
Sweden is far from alone. The Bank of Finland has estimated the country will be cashless by 2029. In Asia, the Bank of Korea estimated that just 17% of transactions there were done with cash in 2020. Only about 14% of transactions last year in the Netherlands were done with cash, according to the advisory firm McKinsey.
The benefits of a lower-cost payments system has helped spur a 31% increase in Sweden’s GDP since the nadir of the global financial crisis in 2009. That’s because reduced transaction costs from broad-based digitization has boosted productivity, Hedman said.
Moreover, the government has had an easier time tracking criminal activity with a nearly all-digital payments system, but that advantage comes with more surveillance — a sticking point that Hedman acknowledges will make progress difficult in the U.S.
But there is a bigger “bottleneck,” as he calls it, beyond a seismic difference in general trust in government between the two populations. And that’s the outdated payments system in the U.S.
“The issue you have is the lack of an interconnected payment infrastructure, the backbone systems without connection, and you still rely extremely much on manual processes,” Hedman said. “That is the biggest bottleneck, even though you're relatively advanced in having core terminals in every store, more or less.”
Aaron Klein, a senior fellow at the Brookings Institution, has pointed to the sluggish payments system as a root cause of inequality and a major reason why overdraft fees and payday lenders have been such big business.
Moving to a cashless society could prove less than harmonious in the U.S., Klein said, because digital payments on the current system are still too costly for those living paycheck to paycheck compared to those better off.
“COVID is a big driver to more Internet commerce, which inherently means less cash. But I think the idea that the U.S. economy is moving cashless is fundamentally flawed, based on the experiences of the middle and upper class for whom access to digital money is cheap,” Klein said. “The high cost of digital money remains a barrier to noncash adoption.”
The flip side of the coin
When the city of San Francisco was considering in 2019 legislation that required restaurants and retail businesses accept cash payments, City Supervisor Vallie Brown relayed a complaint from a resident who, when told by a local restaurant that they didn’t accept cash, went to a human rights department and complained of discrimination.
The restaurant, in reply, apologized to the patron and changed its policy to begin accepting cash, Brown said.
“I wish that all San Franciscans had equal access to banks and the privileges that come with having a bank account or a credit card,” Brown said during a 2019 hearing over the proposal. “But that’s not the case.”
San Francisco is not alone in mandating that stores accept cash: other cities like Philadelphia and the states of New York and Massachusetts have also passed laws or regulations that bar retailers from going cashless.
Beyond the legal barriers to moving the U.S. to a cashless system, local officials, advocates and many consumers themselves are actively working to discourage the trend. According to the Wakefield Research survey commissioned by Square, 85% of consumers polled said they would likely walk away from a business that did not allow them to use their preferred method of payment.
And there is a sincere concern that abolishing cash as a medium of exchange would have a detrimental effect on lower-income consumers, further exacerbating wealth inequality in the United States.
The Federal Deposit Insurance Corp. estimates that 7.1 million American households still do not have an account with a bank or credit union, according to its biennial survey in 2019. That’s equal to about 5.4% of all U.S. households, and while that was a record low, it’s still a large swath of the population that would be left out of a cashless society.
“The bottom line is that the technocratic ‘dream’ of a cashless society is a vision in which we discard what is left of the anonymity that has characterized urban life since the dawn of modernity, and our freedom from the power of centralized companies like banks,” Jay Stanley, a senior policy analyst at the American Civil Liberties Union, wrote in a 2019 post. “Doing without cash may be convenient at times, but if we lose cash as an option we’re going to regret it later.”
San Francisco left its order in place even as the COVID-19 crisis took hold in 2020.
“This is about equity,” San Francisco Police Department Chief Bill Scott said at a May 2020 press conference. “Not everybody has a credit card or an ATM card, and people need essential services.”
Not only would a cashless society be out of reach for those who want to be able to bank but for a variety of reasons cannot get an account, for many, it’s simply not their preference. About one-third of those unbanked reported to the FDIC that they remained so out of distrust for the banking industry, echoing a similar skepticism for the government.
"We see cash and digital options really coexisting. When I promote bicycles, I don't say they're trainless.”
Despite being behind the progress made by other countries toward a cashless society, the fight to preserve physical currency as a choice is hardly limited to the U.S.
The International Currency Association is a trade group whose members are involved in delivering currency to central banks around the world, from printing bank notes to developing ink and security measures for them.
The group’s director general, Jutta Buyse, is no stranger to change. As a child, her mother worked with checks, but in Europe today, she notes, a paper check is hard to find. The ICA has been working on a variety of programs to help preserve the option for using cash, like enabling delivery drones to accept coins and banknotes for orders made on mobile apps.
“We see cash and digital options really coexisting,” Buyse said. “So, it's not electronic payments versus paper payments … it's a whole mix of making cash available digitally.”
To Buyse, the question of whether cash will continue to exist or not in the future is oversimplified — cash or checks or debit cards may be more or less popular at any given time, but one technology rarely crowds all others out entirely.
“The perception is wrongly colored,” Buyse said. “When I promote bicycles, I don't say they're trainless.”
Is change good?
Coinstar, the proprietor of the grocery store kiosks that turn coins into redeemable gift cards or cash, processes about $3 billion in change every year. But the Bellevue, Washington, company’s CEO Jim Gaherity isn’t running from a more cashless world.
“The evidence is clear that more consumer transactions are moving toward digital payments,” Gaherity said. “But there remain a significant number of U.S. and global consumers that are tied either by necessity or preference to using cash. The challenge is how to enable the cash-preferred consumer to participate in digital commerce. That’s going to be critical to bridge that.”
In 2019, Coinstar partnered with Coinme to allow customers to use their change to buy bitcoin at their kiosks. The move proved prescient. The value of bitcoin has increased more than twelvefold since the announcement.
In October, the companies announced Walmart would be putting 200 of the bitcoin kiosks in its stores.
Going a step further, Coinstar is preparing to roll out a new option on its machines as early as this year to allow customers to deposit their change into a digital wallet, Gaherity said. The company is planning to partner with challenger banks to offer remittances, loans and savings products all filled from loose change brought in.
Gaherity doesn’t have a prediction when the U.S. economy will go completely cashless. He’s preparing to profit off being able to shape the transition.
“Businesses and banks should be looking at technology that doesn’t eliminate cash but bridges the gap between the digital and cash worlds,” Gaherity said. “We’ve been working on this all throughout the pandemic.”
For many banks in the U.S., especially smaller ones, the movement toward a cashless society has remained a theoretical one.
Andy Schornack, CEO of the $332 million-asset Flagship Bank in Wayzata, Minnesota, said while there is no doubt that the U.S. is moving in that direction, cash is still the best option for many businesses even as some mobile payment options have impressed skeptics.
“I am not a believer that we will be a cashless society in our lifetime,” Schornack said.
Still, Schornack said small banks like his are looking for various ways to help move customers to ACH and cash management options. He said demand is still “meager” as a percentage of their total accounts, but the effort will “be a focal point over the next few years.”
In a sign of how far away a completely cashless U.S. economy is, Gaherity pointed to how he and the rest of a task force organized by the Federal Reserve continue to work to tackle a coin shortage that started at the outset of the Coronavirus pandemic and that has bedeviled all kinds of businesses, from small retailers to laundromats.
When shelter-in-place orders kept consumers at home in March and April 2020, their loose change stayed home, too, creating an unforeseen dearth of coins re-entering circulation. The Fed had to ration the new coins it was minting to try to keep commerce flowing.
With each wave of the virus, the coin problem rose up again. As the Omicron variant has spread across the U.S., Gaherity said, businesses are putting up signs again asking for exact change. While the pandemic may have opened the door to a more cashless America, he said, it has also made it apparent how dependent a significant part of the American economy is on physical currency.
“Cash is going to be around a long time. We want to play a part in transforming that in a significant way,” Gaherity said. “It’s hard for me to envision a time frame where you start to get to the science-fiction stuff, where it’s completely digital. You have a hard time getting Americans to give up cash completely.”
