Is cash a bane or a boon?
The underlying trends are clear. Across the country, from high-end salad chain Sweetgreen to the new Amazon Go stores, more and more retailers are going cashless as technology improves. For a company like Amazon, doing without cash means speeding or eliminating the checkout process, including getting rid of long lines at peak times. For small retailers, the advantages are fewer losses from cash theft and much simplified operations, especially in high-crime areas.
In response, New Jersey is considering new legislation that would require all brick-and-mortar stores to accept cash. Similar bills have been introduced in Chicago, Washington, D.C. and Philadelphia. Supporters say that such legislation is important to protect poor Americans who don’t have access to credit cards or bank accounts.
This move to lock in the status quo is a mistake. The shift to cashless stores is a positive for poor Americans and small retailers, if combined with a concerted effort to bring low-cost banking to poor Americans. Moreover, regulations requiring cash are likely to reduce the competitiveness of brick-and-mortar stores against e-commerce.
The key is that cash is expensive, both for the unbanked and for retailers that accept cash, especially in poor neighborhoods. Currently “unbanked” Americans amounted to roughly 7.5 percent of households, according to the latest survey from the FDIC. Without access to banks, poor Americans must resort to check cashing services, payday lenders and similar enterprises that impose a hefty fee. Moreover, building wealth becomes much harder without access to the banking system.
On the business side, retailers face a cash theft bill of $40 billion per year, according to one study. That does not include the security costs of handling bills and coins. And, of course, cash is what lubricates the underground economy.
That leaves progressives with two policy options. One policy option is for state legislatures to carve out a protected role for cash, protecting the status quo by imposing a permanent “cash tax” on brick-and-mortar stores. Perversely, that “cash tax” — the extra cost of handling cash — will raise their expenses and hinder their ability to meet the challenge of e-commerce.
The other progressive policy option would give retailers the option to go cashless, while creating new low-cost banking options for poor Americans.
On net, we’d rather choose the second option, which uses the shift to cashless retail as a lever to get support for helping the unbanked. Rather than imposing new regulations on retailers, technology has progressed to the point where everyone should be able to have access to basic banking services, and this is the opportunity to make it happen.
Two other issues arise with the shift to cashless retailers. One is the impact on privacy, which is part of a much larger debate. Without cash, it becomes harder for individuals to make purchases under the radar, but that also makes it harder to hide activities such as illegal drug sales.
The other issue is jobs. The rise of e-commerce has been accompanied by a surprising gain in employment, as e-commerce fulfillment centers have been generating jobs at 30 percent higher than brick-and-mortar retail. Amazon has recently pegged the minimum wage in its fulfillment centers at $15 an hour, far more than the national median of $10 an hour for cashiers.
The shift to cashless will clearly lead to fewer cashiers. But the story doesn’t stop there. The introduction of new technology will accelerate the evolution of retail in a way that produces jobs that require higher skills and are better paid.
We agree that the ongoing shift to cashless retail means a substantial effort to provide basic banking services for everyone. Well-meaning attempts to protect the status quo will simply lock poor Americans into an unbanked equilibrium.