Impacts of Cashless Business on Financial Inclusion

Mobile Payment in Store

As retailers and restaurants experiment with going cash-free, a new paper from the Federal Reserve’s Cash Product Office (CPO) explores the benefits to businesses while also cautioning that the practice could alienate over a quarter of U.S. consumers.

The paper raises significant questions about financial inclusion in an evolving payments landscape. It also acknowledges that going cashless is attractive to businesses seeking to control costs.

Role of cash in financial inclusion

People without a bank account and those who supplement their bank accounts with alternative financial services like payday loans are most likely to rely on cash. People experiencing unemployment or underemployment, working to reduce debt, or trying to establish or rebuild credit, for example.

A 2017 FDIC survey estimates that 25.2% of U.S. households are unbanked or underbanked.

When brick-and-mortar businesses only cater to customers with bank accounts and access to credit, they potentially exclude a lot of people.

Several states and cities agree.

Where do businesses have to accept cash in the U.S.?

Federal statute only requires creditors to accept currency and coin as payment for “debts, public charges, taxes, and dues.” Private businesses can choose to accept cash (or not) unless a state or local law says otherwise.

Massachusetts was the first state to require merchants to accept cash with the 1978 Discrimination Against Cash Buyers Amendment. New Jersey enacted a similar law in March 2019, requiring stores and restaurants to accept cash at all brick-and-mortar locations. At the city level, Philadelphia and San Francisco have followed suit and others, including New York City, are considering similar legislation.

San Francisco’s legislation states, “The purpose of this [law] is to ensure that all City residents—including those who lack access to other forms of payment—are able to participate in the City’s economic life by paying cash for goods and many services.”

Businesses debate whether to go cashless

Going cashless can make a lot of sense for a business looking to offer faster transactions, reduce the likelihood of robbery, and eliminate costs associated with cash handling such as armored carrier transport.

On the other hand, as the CPO’s paper explains, the “move away from cash can, even inadvertently, support financial exclusion of certain consumers.”

Where there’s no specific law in place, it might all come down to what the public wants. Sweetgreens and Shake Shack recently backtracked their cashless policies in response to customer feedback and public backlash.

Do consumers have a right to use cash? Who bears responsibility for financial inclusion? CPO Data and Policy Analysis Director Alex Bau says, “we encourage a discussion about the benefits and risks of cashless businesses so consumers and retailers can make thoughtful decisions about what they do at the register.”

Visit Cash Me If You Can: The Impacts of Cashless Businesses on Retailers, Consumers, and Cash Use for a detailed analysis.

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The views expressed here do not necessarily reflect the views of the management of the Federal Reserve Bank of San Francisco or of the Board of Governors of the Federal Reserve System.