By Valerie Newberg

The prevalence of cash payments in the United States has been steadily declining over recent years as technological innovations have introduced new options to complete transactions. Roughly 41% of Americans say none of their typical weekly purchases are made in cash, compared to 29% in 2018. Other related consumer behaviors indicate a move from cash to cashless transactions, such as the decline in the number of cash purchases of less than $25.

The proliferation of credit and debit cards, payment apps such as Venmo and PayPal, as well as the expansion of e-commerce have created new opportunities for cashless purchases. Additionally, entirely cash-free businesses, meaning those that only accept bank cards or digitally managed forms of currency such as online-only businesses (namely the ridesharing industry and some entertainment venues) do more than just create new opportunities for cashless payments – they require consumers to participate in cashless transactions to access goods and services.

The circumstances created by the COVID-19 pandemic heavily favored the use of cashless payments, exacerbating the decline in cash payments. Many businesses relied on remote payments as online purchases increased. Research suggested at the time that the virus could spread through physical currency. The number of cash transactions dropped dramatically even though market uncertainty, consumer demand and temporary aid programs from the federal government substantially increased the currency in circulation (CIC) and cash holdings. Although the number of weekly cash payments Americans made rose in 2021 for the first time since 2016, the share of businesses handling little to no cash in 2021 was still double the 2019 total. Business owners and the National Retail Federation cite the operating costs, national cash shortages, safety from robbers and prevention of employee skimming as reasons to abandon the practice of accepting cash. Additionally, credit card companies have incentivized business owners to transition to digitally reliant models, such as through Visa’s 2018 Cashless Challenge, which awarded businesses $10,000 to move away from accepting cash payments.

Proponents of transitioning to a cashless society say business owners are foreshadowing a future where bills and coins are not accepted as legal tender. In other countries like Sweden, cash is predicted to be functionally obsolete by March 2023 as most consumers have moved to different forms of payment and policy decisions continue to decrease CIC. When a retailer’s cash sales dip below 7%, scholars expect that accepting physical currency will no longer be profitable for businesses, but low consumer use is not a factor that guarantees the success of a cash-free model. Countries that have transitioned to cash-free or nearly cash-free societies are also marked by widespread digital banking infrastructure and use of debit and credit cards, conditions that are not met in all the states. For example, Mississippi, the state with the highest proportion of unbanked people in the United States (11.1%), is also the state with the lowest number of credit cards per capita (2.57).

The impact of businesses moving to digital-only forms payment options is not evenly felt. Opponents of cash-free businesses argue that historically marginalized groups, such as Black, Indigenous, people of color (BIPOC), those with disabilities, undocumented immigrants and older people are more likely to rely on cash for all of their weekly purchases as they have less access to banking. Nearly 6 million Americans were considered unbanked in 2021 and almost 19 million more are underbanked. With economic stressors like recessions and pandemics, the number of Americans who have access to stable banking decreases further as more rely on nonbank transactions and credit. Additionally, the geographic dispersion of unbanked Americans is uneven across states: in New Mexico, 7% of households do not have a checking account compared to around 1% in Utah.

Several state and local government policymakers have taken a business regulation approach to the issue by proposing laws and ordinances requiring most in-person retail businesses to accept cash payments. In Massachusetts, New Jersey and Rhode Island, lawmakers were successful in passing such bills. Other solutions available to state lawmakers focus on making digital payments and banking more accessible instead of restricting allowed business practices. Innovative policies include increasing bank card use among those who are least likely to be fully banked, like people experiencing homelessness, older people, formerly incarcerated populations and undocumented immigrants. By allowing users of electronic benefit transfer cards, like those issued for SNAP, to add cash to their cards and use them regularly in the retail market, policymakers can integrate traditionally cash-reliant communities into the digital economy.

Some states have addressed both business practices and accessibility of digitally managed payment options. In New York, state lawmakers recently passed a bill to address bank overdraft fees that can prevent low-income residents from accessing stable banking. Additionally, the city of New York bans retail outlets from refusing to accept cash payments and operates IDNYC, a photo ID program that allows residents to qualify for government financial services and apply for a bank account without a driver’s license.

The pivotal economic circumstances surrounding the COVID-19 pandemic offer a unique opportunity for policymakers to evaluate the future of the American economy and implement necessary rules and changes. As motivations for businesses and consumers to go cashless grow in an increasingly digital economy, it is essential that policymakers actively consider how to ensure fairness in the future of retail transactions. Cash as a universal currency offers payment options for disenfranchised populations but can also burden small businesses, and it is the role of state policymakers to balance these priorities by encouraging equitable progress in digital banking infrastructure and consumer involvement in the banking process.

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