THE WINNERS AND LOSERS IN A CASHLESS SOCIETY / BARRON´S MAGAZINE

The Winners and Losers in a Cashless Society

By Ben Walsh




       llustration: Gunnar Rathbun/Invision for Walmart 


If you have been to a gentrified burrito chain or a venture-funded salad shop recently—and frankly, as a reader of a fintech newsletter, the odds are you have—you’ve probably noticed that some of these places have stopped accepting cash.

Slate’s Henry Grabar has a comprehensive look at the rise of cashless stores and restaurants. Places are going cashless for pretty much the reasons you would expect. Their customers can pay with a card (“almost everyone who used cash had a card,” according to Dos Toros’ co-founder Leo Kremer), and dealing with cash is sort of a pain.

Big companies like Walmart and Target have installed machines to count and account for cash in their stores and they “recycle” it back to cashiers to cut costs. Walmart says the machines helped them eliminate 7,000 accounting jobs.

But it’s not just that cash has downsides. The middlemen who facilitate card payments are out there promoting card payments and trashing cash. And payment processing is a great business to be in. The total value of processing fees paid by American merchants last year—$97 billion—actually exceeds the estimated $55 billion annual costs of cash (theft, transportation, etc.) Find a hedge fund analyst who owns Visa or Mastercard and they will tell you why payments processing is maybe the greatest business ever (or ask Dan Loeb about Paypal).

With cash, virtually no one has an incentive to promote it. Yet when you describe it in basic terms, cash is amazing: “It can be given by anyone, accepted by anyone, settled and cleared instantaneously,” University of California at Irvine professor Bill Maurer told Grabar.

Refusing to accept cash excludes some people, but for certain stores, it won’t necessarily exclude any customers. That’s another way that fintech is replicating the pitfalls of traditional finance: The well-off and the well-banked are paid to make cashless purchases, while the poor and underbanked pay dearly for things like money orders.

There are things like Amazon Cash out there, which lets customers convert physical U.S. dollars into digital 7-Elevens and CVS’s, and turn them into Amazon bucks that they can then spend on Amazon. It’s a novel idea, but by design it traps customer money at Amazon. And really, the most expensive problems and biggest inconveniences the un- and underbanked have don’t center around buying things.

The best idea that could help the un- and under-banked would be postal banking. Until such a program sharply reduces the number of people without sufficient access to the financial system, cashless merchants will be a clear marker of who the intended customer is, and is not.