Several states and municipalities are requiring brick-and-mortar retail locations to accept cash from customers.
On May 7, the San Francisco Board of Supervisors voted unanimously to require all brick-and-mortar stores in the city to accept cash from customers. The Board reasoned that the trending practice of retail establishments and fast-casual restaurants going cashless discriminates against low-income individuals, predominantly minorities, who may not have access to credit or bank accounts. Specifically, the Board found that “[f]or many [San Francisco] residents (for example, those who are denied access to credit, or who are unable to obtain bank accounts), the ability to purchase goods and services depends on the ability to pay for those goods and services in cash. This is especially true of the very poor.” San Francisco follows Philadelphia and New Jersey in passing laws banning cashless brick-and-mortar retailers.
In a growing movement across the US, a number of cities and states are introducing measures that require any seller of consumer goods or services to accept payment in cash (Cashless Bans). In addition to New Jersey, Philadelphia, and San Francisco, Connecticut, New York, Oregon, Rhode Island, New York City, Washington, D.C., and Chicago all have considered, or are considering, some form of a Cashless Ban. Surprisingly, Massachusetts has had a Cashless Ban in place since 1978, though it appears that enforcement of the measure in recent years has been essentially non-existent (which has made the ban’s applicability unclear). Even the US House of Representatives has gotten in on the trend, introducing H.R. 2630 Cash Always Should be Honored (CASH) Act and H.R. 2650 Payment Choice Act of 2019.
Cashless Bans all follow the same general blueprint: brick-and-mortar retailers of consumer goods and services cannot refuse to accept US legal tender as payment, though the same retailers’ internet, phone, and mail transactions are exempt. Some bills (including the Payment Choice Act) specifically state that a store cannot post signs or notices saying that cash is not accepted. And some measures include a prohibition against charging customers a higher price for paying cash rather than using a different form of payment. However, retailers more commonly impose additional fees (and therefore charge a higher price) when customers pay with credit cards. (It’s not clear how often retailers have imposed additional fees for paying in cash.)
Lawmakers frame Cashless Bans primarily as a response to the potentially inequitable impact that cashless establishments may have on the unbanked or underbanked population. Statistically, low-income, unbanked (or underbanked) individuals are predominantly minorities and/or undocumented immigrants. Thus, proponents of Cashless Bans argue that the move toward a cashless society — focused on credit and debit cards, mobile wallets, and other electronic payment mechanisms (often linked through smartphones) — will exclude a vulnerable segment of the population from the economy.
Supporters of Cashless Bans appear to have statistics on their side, at least in the short term. In 2018, cash payments represented about 30% of consumer transactions in the US, which is higher than any other single method of payment. Further, a 2018 Federal Reserve study shows that use of cash is considerably higher in lower-income households. About 25% to 30% of households with an income of $50,000 or more use cash, but for those with incomes of less than $50,000, that rate spikes to 35% for households with an income between $25,000 and $49,999, and to 43% for households with an income below $25,000.
Nonetheless, cashless establishments, and supporters of such establishments, have seemingly valid reasons why they would prefer not to accept cash. In particular, by not accepting cash, retailers can increase efficiency at checkout, avoid expenses related to cash transportation and storage, and spend less time training employees on how to handle and safeguard cash. In addition, the fact that cashless retailers do not have any physical cash on site decreases the likelihood that they will be robbed, which carries the related benefit of increasing employee and customer safety.
Moreover, critics of Cashless Bans argue that the measures could potentially stifle future innovation. For example, new technology that would allow customers to simply walk out of stores with their items and have their cards (which are on file with the retailer) charged without the need of a formal checkout experience has the potential to revolutionize the retail shopping experience, and it excites many in the payments industry. Cashless Bans, however, would require these retailers to add specific space in their stores for customers who want to pay with cash, which would undermine the principal purpose of the technology — i.e., speed and efficiency of the check-out process. More importantly, Cashless Bans may discourage companies from further developing advanced payments technology, since such companies would always have to consider how to fit cash transactions into a fundamentally cashless enterprise.
So, is a Cashless Ban coming to a city or state near you? Will Congress pass one of its bills and make Cashless Bans national? Time will tell, and Latham will be sure to provide updates. But one thing appears certain: despite all of the innovation in mobile payments and reducing friction at checkout, the old saying holds true, at least for now —cash is king.