4 Things to Consider Before Your Business Goes Cashless
Retailers are increasingly refusing to accept cash as payment. There are pros and cons associated with the move that you should consider before following suit.
PHOTO CREDIT: Getty Images
In the winter of 2016, Michelle Gauthier, founder and CEO of the fast-casual restaurant chain Mulberry and Vine, was stunned when a local New York eatery refused to accept her money. Gauthier had wandered into Fuku, the famed chicken sandwich emporium launched by serial restaurateur David Chang, where the restaurant had recently gone 'cashless.' "At first, I thought it was the weirdest thing I ever heard," Gauthier recalls. "But then I realized, if David Chang thinks this is a good idea, there must be something to it."
Fast forward to 2018, and Gauthier's business also refuses to accept cash at all three of its New York City locations. Try to hand over a wad of notes to the cashier and customers will be redirected to a series of signs, announcing that credit, debit, and mobile are now the only acceptable forms of payment. Since introducing the measure in 2016, she says, sales have spiked--eclipsing $8 million in 2017 alone. "It was single-handedly the best decision I ever made," adds Gauthier, noting that the benefits of going cashless include faster transactions speeds.
Proponents of moving towards a cashless society insist that the use of credit and debit cards improve the security of transactions (a robber wouldn't be able to physically steal the funds.) Meanwhile, those transactions can be processed at a faster pace, thereby eliminating lines and potentially leading to increased sales for the business, as has been the case at Mulberry and Vine.
To be sure, Gauthier and Chang are not alone in their pursuit of a cashless market. Paper money accounted for just 32 percent of U.S. payments in 2015, and that figure continues to decline, according to the most recently available data from the Federal Reserve. In a recent blog post, Shake Shack founder Danny Meyer defended his restaurant group's decision to decline cash as payment at select locations across the city: "We are unaware of any federal law that requires private business to accept it, and with the growing ubiquity of plastic and mobile payment, many business are choosing to eliminate cash from their operation entirely," he noted last month.
Yet there are several drawbacks to consider. There are still fees associated with accepting plastic as payment, and those fees are typically absorbed into the cost of goods sold, triggering higher prices for consumers, retail analysts suggest. Plus, Meyer's Union Square Hospitality Group has faced backlash from consumer rights groups, who insist that refusing to accept cash effectively blocks lower income populations from the market.
Here are four things to consider before you make the decision to go cashless:
1. Plastic may be more secure.
Meyer's primary reason for adopting a cashless policy, according to his blog post, has to do with safety. "We've mitigated the very real security risks associated with having large quantities of cash on-site, so we can become a safer place for our team and our guests," the entrepreneur wrote. While it's true that paying for a meal with a card or mobile system eliminates the threat of having those funds physically stolen, virtual transactions introduce a host of new security issues.
J. Craig Shearman, the vice president for government affairs with the Washington, D.C.-based National Retail Federation, an industry trade group, further suggests that physical security may be an exaggerated issue. "Safety is probably overblown as a concern [with using cash,]" Shearman tells Inc. "Armed robbery is not a daily occurrence for most retailers, and the vast majority have handled cash safely. We're not seeing the average department store being held up."
2. There are fees associated with the move.
For businesses on a shoestring budget, it's worth noting that accepting cards as payment comes with its own, often steep fees. NRF data suggests that these fees--which can sometimes be as high as 3 or 4 percent of the transaction price--add up to roughly $70 billion annually. "Retailers have to build these fees into the price of merchandise, regardless of whether the consumer is paying with cash or a card," Shearman says. "The average family pays more for goods than they would if not for credit cards, which is part of why many retailers have urged consumers to use cash and checks."
3. You'll see efficiency gains.
For many entrepreneurs, however, the adage that 'time is money' rings true. "Digital systems may be cheaper for businesses in the sense that they are well-developed and fairly frictionless, so it takes much less time to process a payment," suggests Claire Ingram Bogusz, a postdoctoral researcher at the Stockholm School of Economics who studies the rising use of digital platforms, particularly in Sweden. She notes that mobile payment systems such as Apple Pay are particularly beneficial for smaller retailers. "For entrepreneurs, these systems lower the barriers to entry," she says. "Instead of creating a whole cash management system, all you need is a commercially available device, and you get a digital record of the transactions. In that sense, it's very cheap."
4. You could be pushing out the under-banked.
Perhaps the most pressing concern associated with the move to cashless is a social one. As of 2015, roughly seven percent of the total U.S. population--around 9 million households--were 'unbanked,' meaning that those individuals lacked access to a bank account or line of credit; an additional 19 percent were 'underbanked,' meaning that they obtain financial services outside of the banking system, according to Federal Deposit Insurance Corporation (FDIC) data. A business that refuses to accept cash as payment could be pushing those would-be consumers out of the market, and that has some people worried. "From a civil liberties perspective, eliminating cash is very problematic," says Rainey Reitman, the activism director at the San Francisco-based financial advocacy group Electronic Frontiers Foundation. "It excludes a wide range of the unbanked or under-banked, including homeless populations." She notes that there are similar implications for other, wealthier segments of the population--including victims of domestic violence, who may not be comfortable giving a third-party their physical address, for example.
Still others suggest that many retailers that purport to have gone cashless would still accept cash as payment in a pinch. "As it says on the dollar bill, this is legal tender," says the NRF's Shearman. "I think it would be very difficult to turn away someone who has cash in their hands."
Although Mulberry and Vine's Gauthier declined to comment on the underbanked controversy, it's worth mentioning that this reporter--who visited the Tribeca location late last month--received the meal on the house when she revealed that she'd left her cards at home. There are likely, even at cashless restaurants, to be caveats.