Innovations and Payment Systems

How ‘cashless’ trend affects those who rely on cash


In a society that increasingly relies on payments by plastic, some who depend on the actual paper dollar have to adjust.

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As an increasing number of people find plastic as the only form of payment in their pockets, some cash-reliant people, from waiters to street musicians to bell-ringing kettle Santas, are having to adjust.

Street musicians such as the one in this stock image may have a harder time as cash payments dwindle.

Because the movement of cash is hard to track, the evidence so far is anecdotal, but it appears that those who rely on paper dollars and coins are starting to suffer some hardships.

The waiting is getting harder
“Yes, credit cards have decreased the net incomes of waiters,” says Paul Paz, who has worked at three restaurants in Portland, Ore., over his 30-year career. Paz, founder of the website, is an authority on the impact credit cards have had on waiters. He got tired of explaining to friends and family that his career was waiting tables, so he began learning more about his profession to the point that he recently wrote a textbook, “A Guide to Becoming a Successful Server.”

“There’s a misconception among many waiters that the IRS is only looking for a certain percentage of credit card tips to be claimed and a figure I hear often is 8 percent. That’s incorrect. The IRS considers all tips as income, so the credit card paper trail is very obvious.”  In other words, waiters can no longer rely on having unreported cash tips that let them understate their income when they pay taxes.

One saving grace: Customers on average tip more when they’re paying with a credit card. “Studies have shown that gratuities on a credit card tend to be higher than cash tips,” says Paz. “Laying out cash dollars has a hard, in-your-face-impact. It’s nothing to write down the number ‘4.’ But to actually lay down four bills? That’s different.”

The cashless trend

It has been well documented that the other major form of paper money — the check — is fast falling out of favor. The Federal Reserve has already closed several of its check-handling facilities. They were no longer needed because the number of checks has fallen dramatically.

It’s harder to say whether dollar transactions are in decline, but they’re clearly under assault. The leading, measurable form of cash withdrawals — ATMs — have peaked in installation and use. Debit cards have invaded every wallet. Contactless credit card technology has been introduced, and the card industry is pressing to have the gadgets accepted at fast-food restaurants. That would breach one of the last strongholds of cash — small transactions, which consumers still prefer to dole out dollar by dollar.

A 2005 Federal Reserve study chronicled the sharp rise in noncash transactions. While its intent was to look at the rise of noncash payments, it also had a preliminary conclusion about the fall of cash: “Indirect evidence … suggests that the use of cash has declined as a share of all payments in recent transactions. Whether the total number of cash transactions has begun to decline, as has the  number of checks, is less clear.” It extrapolated how cash payments should have risen, had cash payments kept pace. They haven’t, the authors tentatively concluded.

Going cashless: 3 key causes 
According to a 2007 survey conducted by Visa, an overwhelming majority of both baby boomers (79 percent) and echo boomers (74 percent) “believe that our society will one day operate without cash and checks and will conduct all payment transactions electronically.”

Three factors help propel us in that direction:

• Debit cards. A 2007 Federal Reserve study found yearly debit card payments had soared to 25.3 billion, surpassing the number of credit card payments.
•  Contactless and mobile payments. Credit card and phone companies are eager to have us adopt new cash-free spending devices, such as phones that double as credit cards.
• Government going cashless. More than 30 states, the Visa survey notes, have switched to prepaid cards to disburse child care, unemployment and other social benefits. And when Katrina hit and the government wanted to directly money to its victims, it did so with plastic.

Cashless vanguards
In the vanguard of the movement toward a cashless society are people such as Keith Newcomb, a financial planner in Nashville. “For a number of reasons, I’ve gone as cashless as possible,” says Newcomb. “Mainly for the convenience. It’s inconvenient to go get cash and lug it around.”

That kind of talk likely depresses airport porters, bellboys and that poor, shivering Salvation Army guy ringing the bell at Christmas and hoping you’ll put some spare change in his kettle.

“Only a certain percentage of people give money, anyway, and most people seem to generally still have cash in their pocket,” says Scotty Meltzer, 46, a 20-year veteran street performer and comedian, frequently seen at Pier 39 in San Francisco. “But clearly the way the direction is going, we’re worried. We wonder if it’ll be three years before there’s a noticeable difference. Five years? But the suspicion is that the technology will be so ubiquitous that even a street performer will be able to take credit cards.”

He imagines a day when people can pay for an item by flashing a card in front of a mobile sensor. If that technology doesn’t arrive, “It’s going to get tough,” he says.

Newcomb, the financial planner who hates to lug cash around, says that for the past few years, he’s passed the collection plate at his Presbyterian church, and he reports that it’s often almost empty — but donations are still coming in, just apparently in check form, tithes or noncash methods.

Cashless friction
The movement away from cash doesn’t always go smoothly.

Taxi drivers say they are suffering in the transition. Credit card readers may have been installed in nearly half of all New York taxi cabs, and many drivers show their displeasure by covering the machines with hand-written “out of order” signs. The drivers are worried that their tips will shrink — and be easily tracked by the IRS.

Gift cards for bell-ringing Santas
And that guy ringing the bell at Christmas? According to Alice Hohl, community relations director at the Salvation Army in Columbus, Ohio, donations were down in her city last year, and she and other volunteers speculated that the lack of cash people carry might be one reason. “We’re not actively planning for a day when we don’t have cash, but at the same time, we’re trying to encourage people to do online giving and acknowledging that there’s a new generation of donors out there who don’t use cash — or checks, for that matter,” says Hohl.

Hohl is pioneering a program in her area where the Salvation Army will accept unused gift cards during the holidays in lieu of cash. So if a shopper has $1.19 on a particular piece of plastic and knows it won’t likely be used, it can be thrown in the kettle in lieu of cash.

A coin collector’s view

A future without cash is almost incomprehensible to coin collector Joe Barrett. He owns Main Street Coin in Cincinnati and hosts a local radio show, “Coin Talk.” He loves the history and design behind every Roosevelt dime, and can discuss at length the half-cent, which the mints stopped producing in 1857.

Barrett admits that he uses credit and debit cards with increasing frequency, and agrees that the cashless trend has invaded even the business of trading cash.

“This business has always been very cash-oriented,” says Barrett. “Even 10 years ago, every time I went to a coin show, I’d see dealers taking $50,000, $100,000 in cash with them … But I see a lot of those people transitioning into credit cards.”

He plans to sell coins until he retires: “I think cash will always be available in our lifetime. But nobody will want to use it.”

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