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Before 2020, the term 'cashless society' was one of those state of the nation phrases that social, academic, and business commentators just loved to overuse. Yes, like most mature markets, America has seen a steady decline in cash transactions for a while now. But in reality, we still lag behind the likes of China and the UK in the mass adoption of digital, mobile, or contactless payments. In fact, the only country which could legitimately call itself ‘cashless’ in recent years is Sweden, where coins and notes have accounted for barely 1% of all GDP since 2017.
Fast forward to October 2020 and the world is a different place. COVID-19 has changed American consumer behavior so dramatically, that it seems we’re now more ready than ever to embrace a cashless society.
So what are the main reasons behind this?
Firstly, both the WHO and The Centers for Disease Control and Prevention actively cite contactless as the safest way to pay, because handling coins and notes carry more risk of spreading the virus. Then there’s the tracking benefit inherent with digital payments. The Better Than Cash Alliance whose purpose is to accelerate the global transition to contactless, states that “cash-based transactions are typically expensive, inconvenient, inefficient, and lack transparency for governments, companies, and citizens alike.”
It’s no coincidence then that contactless rates have gone through the roof as people look to limit physical interactions while outside. 31 million Americans tapped a Visa contactless card or digital wallet in March 2020, an increase of 6 million from November, and overall contactless usage is up 150% from the same period in 2019.
On a related note, everyday consumer spending has unsurprisingly shifted away from physical stores. Online sales in the first 6 months of 2020 were $347.26 billion, a 30.1% increase over the same period in 2019, largely driven by state-wide lockdowns. And, from April to June, new subscriptions to streaming services soared, with Amazon Prime claiming top spot over Netflix and Disney+ with a 23% hike from 2019.
As for the humble credit card per se, it’s hard to disagree with the notion that using one to make significant purchases is a good way to build your capital, contactless or not. Financial writer Louis DeNicola explains that “Credit cards offer one of the best ways for you to build your credit and improve your credit scores by showing how you manage credit on a regular basis.” All things that the public has greater cause to think about in the current climate.
Now let's look at the other side of the coin (if you’ll pardon the pun).
The biggest argument against a cashless society is a socio-ethical one. Banning cash discriminates against the underbanked and unbanked – a group that is disproportionately made up of people of color living in poor areas, who rely on informal processes like cash in hand, payday loans, and check cashing. Similarly, around 20% of the US population doesn’t have access to a smartphone so mobile payments are not an option for them. And while open market banking and cashless systems suit the young, they don’t always work for older consumers who are more susceptible to scams or simply forgetting their pins.
Then there’s the very real issue of businesses that actually need coins and dollars to operate. The Federal Reserve announced an official shortage of quarters, dimes, and nickels in June. This has had a crippling effect on the country’s Laundromats (of which 56% only accept quarters for payment) as well as residents of apartment blocks who rely on their quarter-operated laundry machines. Some convenience and liquor stores are even tightening their belts by incentivizing customers to help them maintain a cash supply. Like WaWa, which in July, offered a free beverage, sandwich, or Hoagie in exchange for unwanted coins or dollars.
Another factor is that it’s now against the law in many locations for stores to ban cash payments. Up until 2019, Massachusetts was the only state that upheld this, a bill dating back to 1978. But last year New Jersey became the 2nd, followed by major cities including San Francisco and Philadelphia. NYC is set to follow suit later this year.
But there’s a cultural impact too. Dollars and coins are a rich part of our heritage, from the act of tipping hospitality workers to the age-old custom of giving our kids pocket money. And who wouldn't resonate with the recent story of the 10-year-old Louisiana girl who wrote the tooth fairy saying she’d be happy to accept dollar bills because of the national coins shortage?
In conclusion, there are lots of valid pros and cons surrounding the cashless debate. But here at Somo, we believe America should not and will not go down that road any time soon. As a nation, we’re a different beast to Sweden or China with our multitude of traditions, socio-economic groups, and livelihoods that still rely on cash.
While contactless and mobile payments will no doubt continue their inexorable rise, we endorse Harvard professor Shelley Santana’s view that America is becoming a ‘less-cash’ rather than cashless society. A society where brands, businesses, and communities should look to provide more flexible payment choices for both spending and saving money. We like the example set by grocery giant Kroger who lets customers load their coin change onto their loyalty cards, or donate it to charity. A type of ‘phygital’ innovation which to us, represents a more ethical, sustainable, and realistic version of the future.
Somo is a global digital product agency with offices in Charleston, SC; Washington, D.C.; Detroit, MI; as well as London, Bristol, and Medellín.
If your business needs help to overcome its digital challenges, drop me a line at Jack.Reinelt@somoglobal.com.