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Legal, Regulatory, and Privacy Issues

Will banning cashless businesses affect the credit card market?

Read what experts think will happen if the trend toward banning cashless businesses continues

Summary

Philadelphia is the first U.S. city to put the kibosh on cashless businesses to give lower-income consumers access to the marketplace. Experts give their opinions on how more cashless bans would affect the credit card market.

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Cashless businesses have gained popularity. These are businesses at which you can pay with a credit card, debit card or your smartphone, but where your cold, harsh cash isn’t welcome.

With apps such as Uber and Venmo in play, fewer people carry cash these days.

But some think cashless businesses discriminate against lower-income consumers who still rely on cash as their primary way of paying for things.

And in February 2019, Philadelphia City Councilman Bill Greenlee proposed a bill that would give cashless businesses until July 1 to start accepting cash.

On March 7, 2019, Mayor Jim Kenney signed it into law, making Philadelphia the first city in the United States to take legal action against cashless stores.

According to The Wall Street Journal, the new law will “require most retail stores to accept cash,” but will not include parking garages, membership stores like Costco or hotels.

If other cities around the country start saying no to cashless businesses, how will that affect the credit card market? Read on to find out what experts think. But first, learn more about cashless business models and why they exist.

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Why businesses go cashless

Being a cashless business has its advantages.

Safety is one benefit cashless businesses enjoy — with no cash in the store, thieves don’t have anything to steal. In addition, because every card transaction is accounted for, there’s no chance that some money might “go missing.”

Sweetgreen, a popular salad chain, went cashless in March 2017.

The company explained that employees at the store spent up to two hours a day just handling cash when they could conduct 5 to 15 percent more transactions each hour using only cards.

In addition, Sweetgreen pointed out that as of 2016, fewer than 10 percent of its customers used cash to pay for their food.

Who is still using cash?

According to a Pew Research Center survey, 34 percent of African Americans use cash for most of their purchases, compared with 15 percent of Caucasians and 17 percent of Hispanics.

In addition, the survey revealed 29 percent of those earning less than $30,000 a year rely on cash for all their purchases.

And lawmakers agree that cashless businesses discriminate against these populations.

Councilman Greenlee’s reasoning

Cashless businesses were a real problem for City Councilman Greenlee.

“Even if it’s not intentional, it’s discrimination, because the cashless stores basically exclude a segment of the lower-income, minority immigrant population,” Greenlee said.

“At a basic service business, I should be able to walk in and use a credit card if I want, but then the person behind me that might not have a credit card should be able to purchase the product if they have the money to.”

Under the new law, businesses that are caught refusing cash will be fined $2,000.

Other municipalities are already following Greenlee’s lead.

New York City and Washington, D.C., have made similar proposals to ban card-only businesses and just recently, the New Jersey legislature instituted a statewide ban on cashless businesses.

People will still use credit and debit cards

A cashless society is a movement that is becoming more and more prevalent in the U.S., said Ashley Lomelin, public relations manager at Allegro, a company that offers its members a wide range of discounted financial products and services.

“However, this also becomes an us-versus-them situation when you factor that many people are still unbanked or underbanked, so a cashless society would be impractical,” Lomelin said.

Forcing businesses to accept cash, as they once did, would enable the unbanked community to participate in their local economy without a “hardship discrimination,” she added.

Lomelin doesn’t think there will be a significant impact on U.S. cashless businesses if they are forced to accept cash.

“At one point in their existence, they accepted cash. The challenge with cash is that there is the risk of theft as well as the fact that banks themselves do not like to take cash deposits from businesses (some limit the amount of cash they will accept each month before assessing fees).”

And Lomelin feels people who use credit or debit cards won’t stop using them once businesses accept cash again.

Most people who use credit cards use them for specific reasons — for example, they don’t have or want to carry cash to make purchases or they want to accumulate miles or points from using their credit cards.

“I wouldn’t expect that behavior to change significantly,” Lomelin said.

See related:  Is your business ready to go cashless? Read this first

Cashless fans make up only a small digital market segment

Matthew Ryan of Flushing Law Group agreed that a legal requirement that all cashless businesses accept cash would certainly go a long way to ensuring that disenfranchised minorities are not discriminated against because of their disconnect with the banking system.

He said such a law would also support privacy rights because cash settlement protects all market participants who prefer their transactions remain private.

Ensuring that cash is to be accepted as legal tender at any establishment preserves liberty because market participants should have the right to transact for goods and services without exposing their market data to third parties.

Ryan feels, like Lomelin, that a law banning cashless businesses would have a negligible impact on credit card use because those who value cashless are only a small market segment in the digital economy.

“The fact is that when Apple Wallet and other smart digital wallet technologies fully integrate their technology into e-commerce platforms, that many will consent to using these payment systems by choice,” Ryan said.

“That said, people should always have the opportunity to use cash because cash ensures individual rights are preserved and respected,” he added.

Credit card users won’t likely be affected

Banning cashless businesses is the latest legislative trend that is spreading like a wildfire across the U.S., said Uri Abramson, co-founder of the personal finance blog Overdraft Apps.

But nothing too dramatic will happen if business across the U.S. are forced to accept cash payments, Abramson said.

“These actions are counterproductive, but not earthshaking. The merchants will adjust their payments and accounting practices,” he said.

And Abramson agrees with Lomelin and Ryan that the credit card industry won’t be negatively affected if there’s a ban on going cashless.

“People who don’t have access to credit aren’t these businesses’ customers,” Abramson said.

“Those who do will probably keep using credit or debit cards as they do now. A small subset of customers who’d rather pay cash will switch back to cash, but we’re not talking about significant drops,” he added.

Finding the middle ground

All of the experts agree that a ban on cashless businesses won’t negatively affect consumers using credit and debit cards. And they all agree that it would help those who are unbanked.

There might, however, be some middle ground.

For instance, a company called All_EBT uses a combination of virtual Visa cards and Facebook Messenger to enable those who receive SNAP assistance (food-purchasing assistance for low- to no-income people in the U.S.) to shop online — and at checkout-free, grab-and-go Amazon Go stores.

Although this solution won’t solve all the problems that come with a cashless business model, it’s a start.

And until more businesses come up with ideas that explore that middle ground, a cashless business ban can bridge the gap.

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Published: May 6, 2019

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