Is America becoming a cashless society?
The future of physical money in the United States
Cashless transactions have increased following the creation of contactless and mobile payment options, such as Apple Pay and Venmo. The first truly cashless society could be a reality by 2023, with Sweden leading this digital “revolution,” and America could soon be next.
“The global economy is increasingly powered by digital transactions and in the next few years, the world will see the first truly cashless economies,” said Simon Kent, global head of financial services at global management consulting firm A.T. Kearney.
A cashless society eliminates the use of all physical money — cash, checks and coins — and is completely replaced by electronic means of payments. “It’s a world where cash doesn’t exist, no one is paid ‘under the table,’ and every transaction you make is traceable,” as stated by Ramsey Solutions of DaveRamsey.com.
Businesses are defined as being cashless when they accept “95% or more of their transactions through credit or debit card,” according to American financial services, merchant services aggregator and mobile payment company Square, Inc.
Contactless and mobile payments are expected to grow annually by more than 21% in emerging markets and over 7% in developed markets by 2021, according to an analysis from A.T. Kearney.
An alternative means of a cashless society involves microchipping people’s hands, which is already occurring in Sweden.
“Everything I’ve seen in banking — I’ve been in banking since 2005 — I see it heading toward that direction — toward a cashless society,” said an anonymous source who works for a local bank on Long Island. “They’ll [the government] will say it’s for a sense of security … they use security as the purpose for adding on these changes.”
COVID-19 pandemic effects on cash
Due to the coronavirus pandemic, more Americans are opting for contactless means of payment to avoid touching cash or cards someone else did without it being sanitized first.
On March 1, 2020, 8% of U.S. Square sellers were effectively cashless, but 54 days later on April 23, the number of cashless businesses jumped to 31%.
Prior to COVID-19, it took four years for card usage to increase by nine percentage points, according to Square. However, from April 1 to April 29, the card usage for $10 to $20 transactions in the U.S. increased by two percentage points.
In a survey of 1,000 small business owners, conducted by Wakefield Research, a majority (82%) are still accepting cash payments despite the COVID-19 outbreak. Meanwhile, 15% are currently not accepting cash but plan to in the future, whereas 3% are not accepting cash and do not plan to in the future.
“In the United States, 26% of all payments were made by cash so that’s over four times what it is in Sweden,” Associate Professor of Economics at Hofstra University Constantine Alexandrakis said.
Even though digital transactions are being reported, Alexandrakis believes the move toward a cashless society in America comes from the civilians, particularly the younger generations.
“It [cashless payments] seem like it’s more convenient than having to carry cash on you,” he said. “First of all, if you carry cash there’s also the chance that you may lose it … it may get stolen, whereas with a credit card, even if it does get stolen, you can always cancel it [because] there’s protections in place.”
Those in favor of a cashless society, such as credit card networks and issuers, argue that it would “reduce tax evasion and money laundering crimes,” as well as “fewer violent crimes and less resources [being] consumed to produce and handle physical currency,” Forbes Advisor Staff Brett Holzhauer said.
Despite cash still being used frequently, business owners now think the United States will become cashless six years sooner than they predicted in 2019, according to Square. America is projected to become cashless by 2033.
“This COVID-19 pandemic has accelerated that process of automating jobs [and] basically the way we use money or funds,” said an anonymous source who works for a bank on Long Island.
However, Alexandrakis argued the pandemic has not had much of an effect on the willingness of people to use cash versus electronic transactions.
“If you look at the percentage of payments that were made in cash in 2020, in the United States, they seem to be about the same percentage of payments that were made in cash back in 2018,” he said. “It [cash] may not be king, but it’s not going away anytime soon. I don’t think in the United States anyway.”
The unbanked
However, there are concerns for the unbanked if America were to go entirely cashless in the future.
An estimated 7.1 million American households were unbanked in 2019,” according to the Federal Deposit Insurance Corporation (FDIC), meaning the households did not have a bank or credit union account. More Americans are likely to become unbanked as a result of a loss of income due to the economic shockwaves of the coronavirus pandemic.
Those who decline to open bank accounts are not just low-income Americans. People who distrust banks or have had negative experiences with them in past also usually have no desire to open an account.
The unbanked may be a reason why the United States cannot get rid of cash altogether, suggested Alexandrakis. “Think about a homeless person … or street artists performing and they have a guitar case open — what would you put in there if you don’t have any [cash]?”
As for now, cash is here to stay. “Cash is still alive and well,” according to Ramsey Solutions, “and no pandemic can take it down.”
