Moneybox

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Cash is a miracle. So why are more businesses refusing it?

A dollar bill digitizing.
Photo illustration by Slate. Photo by paulprescott72/iStock.

For years, small businesses have asked customers to pay cash, set credit card minimums, or added a surcharge onto card transactions, in an effort to defray the premiums imposed by companies like Mastercard and Visa. Now, an increasing number of businesses are doing the opposite. Head out of Slate’s offices for lunch and you might wind up at Dos Toros, a local burrito minichain; for coffee you might pick Devoción, a Colombian-born coffeehouse with an airy storefront. In either case, you’d be confronted with the same demand: Pay with plastic.

Stores are eliminating cash registers and coin rolls in pursuit of what they say is a safer, more streamlined payment process—and one that most of their customers want to use anyway. At Dos Toros, co-founder Leo Kremer said that more than half of the shop’s customers used cash when its first location opened in Manhattan in 2009. By the beginning of this year, that number had fallen to just 15 percent. At that point, the various hassles of dealing with cash—employee training, banking fees, armored-truck pickups, and the occasional robbery—outweighed the cost of credit card fees on those transactions. The shift wound up being more or less revenue-neutral, Kremer said, but saved a lot of time and trouble. Dos Toros’ New York locations have been fully cash-free since the winter.

And what about customers who don’t carry a card? “You agonize over that,” Kremer said. “After talking to the team and absorbing the flow at the register, we felt like almost everyone who used cash had a card. It just hasn’t been an issue.”

Cash is still used in the majority of purchases under $10, according to research by the San Francisco Fed. But its use is falling sharply. In 2011, cash accounted for 4 in 10 purchases in the S.F. Fed’s Consumer Payment Diary. By 2016, it was down to 3 in 10. Starbucks experimented with a cashless store in Seattle earlier this year (no word on whether the pilot will expand); even farmers markets are using Jack Dorsey’s payment device Square; and cardless mobile payments like Apple Pay are pushing into the market too.

The greenback, of course, remains “legal tender for all debts, public and private”—it says so right there on the bills in your wallet, if you still carry any. But until you’ve made a deal with someone, you don’t have any debt. Courts have sided again and again with merchants who refuse coins or currency “on a reasonable basis,” a Treasury spokesperson explained, “such as when doing so increases efficiency, prevents incompatibility problems with the equipment employed to accept or count the money, or improves security.” That’s why an ice-cream shop can refuse to take $100 bills or why a transit agency can direct bus drivers only to accept coins for fares.

This trend toward thinner wallets makes it easy to forget what a miracle cash is. “Cash is profoundly democratic,” said Bill Maurer, the dean of the School of Social Sciences at UC–Irvine and the author of How Would You Like to Pay? “It can be given by anyone, accepted by anyone, settled and cleared instantaneously.” One of the central bank’s great achievements, he observed, was making sure that transactions involving cash and checks would be settled at par—meaning that there’s no transaction cost to paying that way. (As late as the 1930s, banks were still charging “interchange” fees on checks.) With plastic and online payments, that’s rarely the case.

There’s always a middleman in noncash payments, which is driving what Maurer calls a “Cambrian explosion” in the payments industry. Apps, plastic, and crypto are suddenly everywhere. Sweden is building a “cashless society.” In China, mobile payment apps are the dominant form of payment at countless establishments. In Shanghai, the venture capitalist Eric Li told me a story about trying to get his morning coffee the morning after a storm had knocked out the internet on his block. No one could buy coffee, because no one was carrying cash.

But it would be hard to find anyone more gung-ho about the abolition of cash than credit card companies. Last summer, for example, Visa announced a $10,000 reward to 50 businesses that would give up cash entirely. “What concerns me about a cashless future is how much it benefits Wall Street,” Stacy Mitchell, co-director of the Institute for Local Self-Reliance, wrote to me in an email. “They can charge swipe fees of two to three percent not because that’s what the service actually costs, but because they have monopoly power. It’s a form of rent-taking.”

Most consumers do seem to be embracing, and even driving, the shift. I called up my friend Simon Chaffetz, a software engineer in Silicon Valley, who, when I met him a decade ago, was one of the first people I knew to shun paper currency (in part a legacy, he says, of growing up in France, where using cash meant coming away with pockets full of heavy coins). He still uses cash with his dry cleaner—a kind of credit card guilt. But generally, he said, he would much sooner get stranded without cash than without his phone. I doubt he’s the only one to see it that way.

Advocates for the gradual abolition of cash view it, basically, as a sloppy medium that enables corruption, black-market transactions, money laundering, and tax evasion. Not to mention a wide range of petty and serious theft. Kenneth Rogoff, a Harvard professor and author of The Curse of Cash, has argued that cash is important for privacy and useful in disasters. But, he wrote in the Wall Street Journal last year, the Treasury could easily phase out $100s and $50s to reduce tax evasion and crime. Less cash might also make it easier for the Fed to push negative interest rates, encouraging lending in the aftermath of a crisis.

But many of hard cash’s negative externalities—criminality, theft—also exist in the virtual realm. Blockchain currencies like bitcoin can be used to buy illegal drugs, for example. Credit card data is hacked from one company or another every few months. What’s more, some scholars contend that the anonymity and flexibility of cash is a safeguard. “We increasingly live in glass houses: virtually everything we do is recorded, tracked, or monitored,” argued Jonathan Barth, a historian of capitalism at Arizona State. “Even if we lived in an ideal world of complete corporate and governmental benevolence, bad actors might later grab a hold of those institutions and thus inherit an extraordinarily powerful surveillance apparatus—one that they could use to advance their own corrupt or tyrannical ends.” What he’s talking about is to some extent happening in China, where purchases are closely monitored and debts might prevent you from, say, buying a plane ticket.

In America, though, approximately 7.5 percent of the population remains unbanked—and thereby excluded, for the most part, from the perks and convenience that come with top-shelf financial products. It’s a more diverse group of people than you think, Lisa Servon told me. For her book, The Unbanking of America, Servon worked at a check-cashing business in the South Bronx and for a payday lender in Oakland, California. She found that the fastest-growing group of people getting payday loans—an extremely expensive form of cash advance—was college-educated homeowners making $60,000 to $70,000 a year. “Banks understand how expensive [banking] is and they do understand who they’re excluding. Your ice cream shop choosing to go cashless doesn’t recognize they may be excluding a portion of their market.” Only Massachusetts has a law requiring merchants to accept cash, the 1978 Discrimination Against Cash Buyers Amendment, and it is essentially unenforced.

Experts worry that the decline of cash could lure consumers into risky financial contracts. While most concerns about cashless business focus on issues affecting the unbanked, said Brenton Peck, a senior manager at the nonprofit Center for Financial Services Innovation, actually putting plastic in people’s hands isn’t the primary issue: “Encouraging more adoption of card products by pushing the cashless society could compromise people’s financial health. We’re forcing a segment of the population to act in ways they otherwise wouldn’t.”

Take the overdraft fee, a punishment for desperate or careless customers that netted banks $15 billion in 2016. As many as half of overdraft fees aren’t assessed at an ATM, where customers can see their balance, but at the point of sale—debit card transactions at the counters of shops and restaurants. And the majority of overdraft fees, the Consumer Financial Protection Bureau reported in 2014, came on transactions of $24 or under. Not people stretching to make a big purchase, in other words. Just trying to get lunch.