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The transition to digital payment methods in the last couple of decades has been rapid. The recent COVID-19 crisis only accelerated these trends when everything seemed “untouchable” and cash was no different either.
Businesses often think of the intriguing question of whether or not they should go all-digital. The question remains open on a broader spectrum for the US economy too.
Let us help you understand the burning issue and see whether the US will keep the cash usage alive and for how long.
Are We Really Going to See the Death of Cash?
The first modern-day credit card was introduced over seven decades ago. We have been hearing the death knells of cash since then. The voices got louder when we saw a surge in digital payment apps and cryptocurrencies.
Despite a clear decrease in paper money usage around the world, we are far from abandoning it completely. Cash is perceived to be the most convenient, safe, and anonymous source of payment worldwide.
The rise of credit and debit cards raise concerns over privacy, cyber crimes, and costs. Cryptocurrencies are untraceable but they are more prone to cyber crimes and digital fraud than any other form of payment.
Digital wallets also possess the same concerns of additional costs, privacy, and cyber crimes. Although this type of payment has seen the most significant popularity in recent years.
The global trends of going cashless are varied. Some countries like Sweden and Japan are already moving toward cashless norms and others like India are reluctant to fully go cashless.
But the most depressing issue in calling for the “death of cash” is to replace all the paper money in circulation. Just to give you an idea, the estimated value of paper money in circulation is over $18 trillion in the US alone.
What Happens if the US Adopts a Cashless Economy?
The biggest hurdle in going cashless will be to replace those $18 trillion bank notes in circulation all over America. And that wouldn’t be an easy job to do for the FED.
We had a hint of what it would look like when large retailers and supermarkets faced a coin circulation problem during the COVID-19 crisis.
Remember, the FED claimed it was only a coin circulation problem, not a coin shortage problem. There were $48 billion worth of metal coins at that in America.
Going cashless is not inclusive, not yet. Millions of Americans are still underbanked or unbanked, so they don’t have access to digital payment methods as yet.
There is no question about the growth trends of the non-cash payment methods in the US. However, it is a far cry to replace paper money at all and find an alternative that fulfills as many features as traditional money does.
Pros and Cons of Running a Cashless Business
So, if an economy cannot adopt a 100% cashless style, what about individuals and businesses taking the lead?
Businesses around the world have started going cashless. Many developed countries like Sweden aim to go fully digital. However, that’s not the case everywhere.
Challenges in going fully digital aside, we take a closer look at the pros and cons of running a cashless business for you.
Pros of a Cashless Business
Your cashiers will breathe a sigh of relief if they hear you are going fully digital, perhaps your customers (most of them) will like it too.
Convenience and Efficiency
Digital payment methods offer more convenience to businesses and their customers alike. You don’t have to go through the hassle of counting, sorting, and storing physical banknotes.
Improved Security
Digital and wallet payment methods are more secure than paper money. Although there are chances of cyber crimes, they are protected from theft and robbery.
So going digital is perceived as safer by both businesses and customers.
Faster Money Exchange
Moving physical currency notes from the cashier’s drawer to the safety vault and then to bank deposits is tedious and time-consuming. However, better and more sophisticated arrangements can reduce this time.
Cons of a Cashless Business
Going digital is not easy and cheap for all types of businesses. Small and medium-sized businesses are particularly prone to these challenges.
Increased Costs
Credit card and digital wallet processors impose hefty charges on businesses. Customers have to pay interest rates on these transactions too.
It means going cashless is not cheap for both parties. And for some cash-heavy businesses, the cost of abandoning cash could become a competitive disadvantage.
Privacy Concerns
Perhaps the biggest perceived advantage of using cash is its autonomy - you cannot trace it back to its origin. Some say it’s the biggest disadvantage of using cash too.
Anyhow, credit cards and digital wallets are prone to privacy concerns as your personal information is shared.
Excludes a Large Customer Base
Americans would love to go cashless but it still remains a distant dream for many. An FDIC survey revealed that 25% of Americans are unbanked or underbanked. And 22% of Americans do not have a credit card. So, roughly one in four Americans rely completely on cash.
So, if businesses embrace a “no cash policy”, they’ll be excluding a large customer base. That problem would be exaggerated in some states where access to digital payment methods is challenging.
Leaves No Alternatives
We faced a coin circulation problem. We often find retail outlets out of change- we can see disruptions with digital payment methods too.
And if a business is only operating under digital payments, it will have no choice but to refuse the transaction should anything go wrong with its payment system.
Cash is the Last Free Option
Operating costs, interest charges, credit card issuance fees, and annual maintenance charges are just a few types of costs associated with non-cash payment methods.
These costs are for both the businesses and their customers. For millions of businesses and their customer base, cash is the last true free option.
Final Thoughts - Cash is Well and Truly Alive
The American economy is moving toward digital payments, however, it is a far cry to say it will embrace the cashless mode any time soon.
Businesses and their customer base prefer more choices including cash. It also depends on the nature of the business and the size of the transaction.
There are legislative challenges to this transition of replacing physical cash with digital currencies. Then, there is no single type of non-cash asset that can be used as universally as cash.
So, for the foreseeable future, there is no possibility of going fully cashless in the American economy. Businesses must remain equipped with the right tools to handle loads of cash coming their way.