A cashless store expands, but the market remains small

Nestled among the waves of tourists and commuters near Grand Central Terminal is a spot were a “no cash” store is working, free from political pressures. But its success still suggests that paperless payments are a niche play.

The store, Artiserie — a sandwich shop at East 45^th Street and Lexington Ave. — doesn’t accept paper money, and has been successful enough in its first year of business to chart an expansion strategy for next year.

Artiserie’s staff preassemble ingredients, which are then “flipped” into baguettes. The store’s concept is to remove all inorganic materials. In addition to not accepting cash, the store uses only uses compostable materials.

“When we talked to people in the industry when preparing to open, we realized the nine out of ten customers are using credit cards anyway, and there are a lot of benefits of going cashless,” said Adam Mehrfar, a co-founder of Artiserie.

Artiserie’s founders are aware of the controversy that surrounds cashless stores, namely that they don’t serve underbanked consumers and also cut off access to healthier food options in underserved communities. In New York, a bill proposed by Ritchie Torres, a Democrat who represents parts of the Bronx in the City Council, would ban no-cash stores, with fines of $250 for a first violation (not accepting cash) and $500 for following violations.

“We want everyone to participate and don’t discriminate against anyone,” said Mehrfar. “We made the right business decision in order to survive in a complicated and difficult market.”

According to Pew Research about 82 percent of people with incomes between $30 and $75,000 have smartphones, so access for underbanked consumers is not an issue, according to Thad Peterson, a senior analyst at Aite Group. “Prepaid card alternatives abound, and a general purpose reloadable card can be purchased at nearly every grocery or convenience store in the country.”

Torres' office said it expects a meeting on the bill in February. In an email from Artiserie's public relations representative, Gavin Caganoff, another Artiserie co-founder, said that based on Artiserie's current, it would require 1.5 hours of additional labor per day. That equates to 378 additional hours per year or $6,350, he said. This estimated cost does not take into account the negative impact it would have on our throughput possibly resulting in a loss of sales, Caganoff said, adding the store would also have to purchase a cash register, safe and implement a cash management process. "It would require a significant operational change," he said.

Cashless stores are slowly gaining steam in New York and other cities. Shake Shack opened a no-cash store in Astor Place in Greenwich Village, as have other merchants such as Dig Inn and Sweetgreen, both not far from Times Square. But Shake Shack eventually added cashiers after complaints from customers that it was difficult to use the technology to place orders.

Like Artiserie, those stores are located in parts of the city where consumers are most likely to have credit or debit cards and/or mobile wallet apps. Starbucks' foray into cashless payments also in a demographically friendly part of Seattle. In Artiserie’s Midtown East location, much of the foot traffic is hedge funds, banks and other financial institutions, which fits a similar demographic that does not include a critical mass of underbanked consumers, and thus is better positioned to operate a cashless store.

“We do get a customer here or there that takes out cash to pay,” said Caganoff. "Most often they’re tourists…there’s a lot of hotels in the neighborhood. In almost all cases they happily pull out a card, so it’s not even a blip on the radar.”

There are also unseen benefits of not having to handle cash, Caganoff said. "There’s more time for customer service, training and more time for business strategy rather than counting coins or operating a register.”

Most of the media coverage of the New York anti-cash ban bill has focused on Amazon Go more than the smaller businesses. Amazon is expected to open its first cashierless store in New York shortly. The cashierless stores operate by asking shoppers to scan a mobile app upon entry to identify themselves; after they leave, any products they picked up along the way are charged to their Amazon account.

“If anything there are benefits to the city. You can’t hide income or sales tax from going cashless,” Mehrfar said. “And there’s a safety issue. You don’t have to worry about going to a bank with a bag of money.”

In India, the government justified removing about 85 percent of the country's cash from circulation by contending paper money is less safe than electronic payments, which are easily traceable for tax and security purposes. Another argument in favor of reducing cash an an option is smartphone expansion, which would support introductory financial services and financial inclusion options such as mobile money apps.