Loss of privacy, inequity in banking access are among drawbacks
As businesses and destinations begin to reopen from the pandemic shutdown, consumers will likely see more places going cashless.
Chase Field in downtown Phoenix, home of the Arizona Diamondbacks, will reopen to its full capacity later this month. When the stadium opened to a limited number of fans in April, the team announced a new policy of not accepting cash. Fans use a smartphone app to reserve parking and to order and pay for concessions. Cash is not accepted at the concession windows, parking garages or team shop.
The east entrance of the Grand Canyon, closed for over a year, reopened last month with a policy of accepting only park passes and credit cards — no cash.
Going cashless will not be a major inconvenience for people who already use their debit or credit cards almost everywhere, but it does raise some issues regarding privacy and equity, according to two Arizona State University experts.
“It’s more hygienic because there’s less contact and you’re not sharing bills and change,” said Geoffrey Smith, clinical associate professor of finance in the W. P. Carey School of Business at ASU.
“Things have been heading toward cashless, but this is a good time for businesses to roll it out, when consumers are more accepting of it under the guise of safety.”
Also, businesses don’t have to deal with hiring armored cars to transport large amounts of cash.
Some businesses accept digital payment services, like Apple Pay, Smith said.
“I think that’s the future, where you use your phone and get rid of the cards,” he said. “People like the speed and convenience and the accurate record keeping.
“You can go out to dinner and split the bill right at the table on everyone’s phones.”
In addition, Smith sees even brick-and-mortar retail sites adopting cashless policies.
“Some places are trying to get rid of cash registers in stores by moving toward a kind of shopping where you put your item in the cart and it’ll just charge you right then,” he said.
The Amazon Go and Amazon Go Grocery stores use this method, where there are no checkout lines.
“It saves space and frees up labor,” Smith said. “Retail needs to compete with the online experience, so these types of instantaneous payments allow retail to be more competitive.”
But he sees some people preferring to use cash for privacy reasons.
“There is a loss of privacy. All of your transactions are now electronically tracked, and people can tell where you were, how much you spent and what you bought,” he said.
As consumers’ purchases add up, the data can be mined for more personal information.
“For example, if you go to the same place every day for coffee, a company can infer that you work in that area because you’re there 200 days a year at 8 a.m.,” he said.
But the move toward cashless transactions raises issues of equity, because low-income people are less likely to have accounts with traditional banks, according to Debra Radway, a lecturer in the W. P. Carey school and a certified financial planner.
“A lot of the banks have requirements for minimum balances, they have overdraft fees and they have a lot of fees in place that make it cost prohibitive for a low-income person to have an account at a traditional bank,” she said.
“With larger institutions, they usually have a minimum amount you have to keep in your account or you have to have one direct deposit going in to waive the fees.”
A traditional bank’s fee for an overdraft could be $40 or $50, she said, although credit unions typically charge less.
Banks are for-profit companies and make money from fees and from the large balances carried by customers, which they can lend out, charging interest.
“They do have a requirement they have to be in underserved communities, but as a general rule, banks are focused on making a profit so they’re looking for the most profitable customers,” Radway said.
A 2019 survey by the Federal Deposit Insurance Corporation found:
- 5.4% of households, about 7.1 million, in the U.S. were “unbanked,” with no checking or savings accounts.
- The percentage is much higher for Black households, 14%, and Hispanic households, 12%.
- Unbanked households said the main reason is because they don’t have enough money to keep in an account.
- About 7% of unbanked households had a credit card.
- Two-thirds of unbanked households reported that they pay bills in cash, according to another FDIC survey conducted in 2017.
Being unbanked doesn’t mean avoiding fees, though.
“If you’re low-income and you don’t have a checking account and you get paid with a check, you have to pay an extra charge to cash that check,” Radway said.
“If you want to look at who’s serving the poor, it’s the check-cashing companies and the payday loan companies. When poor people live paycheck to paycheck, they run short and have to take out short-term loans and wait until their next paycheck comes in to cover it.
“Those tend to have high annualized fees, but if you don’t have an account, you don’t have a choice.”
Not everyone is embracing the cashless trend. Last year, New York City joined Philadelphia and San Francisco in banning stores from going cashless because of the equity issues, specifically the difficulty that homeless and undocumented people would face in acquiring bank accounts.
Some venues are acknowledging that many consumers still use cash. At the Staples Center in Los Angeles, where the Lakers play, the concessions are cashless but fans can use “cash-to-card” kiosks in the arena to convert dollar bills to prepaid cards with no fee.
Radway said that other countries, such as China, use digital wallets that are not attached to bank accounts.
“It will be interesting to see how we evolve toward payments on our phones without cash,” she said.
“These fin-tech companies are offering banking-related services and allow you to move money around without a bank.”
Top image courtesy of Pixabay.com.
