Will Digital Payments Replace Cash In The U.S?

Cash is king, but in a socially
distant world where payment is as easy as. Does cash still hold the same value? Cash is still relevant, but
cash is no longer king, although people in this country and around
the world do continue to use cash to purchase things every
day, that is decreasing. Electronic payments have
cannibalized checks. Card payments have grown,
but cash remains king. Two thirds of transactions under ten
dollars are done in cash. Although data surrounding COVID's impact on
cash has yet to be reported, the pandemic is expected to cause a
drastic decline in cash usage due to the risk of contamination. The unprecedented surge in the demand
for contactless payment has also shown outstanding performances from
major companies offering cashless payment methods like Apple,
Square, and PayPal. You're seeing digital payments
in this crisis move from being a nice-to-have
capability to a must-have essential service. Whether it is credit or
debit or prepaid cards or peer to peer services like
PayPal or Venmo or others, we're seeing a corresponding increase
in digital transactions as we're seeing a decrease in the use of cash.

So could Covid signal the end
of cash in the United States? And can the U.S. really
function without physical currency? Nearly a third of U.S. adults say they make no purchases
using cash during a typical week. The share of people who say that
all or almost all of their weekly purchases are made by cash dropped
from 24 percent in 2015 to 18 percent in 2018. In 2019, the Federal Reserve found
that most cashless methods of transactions, including debit cards and
mobile payments, increased in the past two years compared to cash
and check payments, which showed a decrease in the same time period. I never carry around cash. So I use Apple Pay at
the Bodegas, for example, when I'm getting groceries, for most
of my purchases. I don't use that necessarily
for like electricity bills, for dinner bills. That's when I would use
Venmo or Cash app. Despite the rise in electronic methods
of payment, experts say that cash isn't a force to be reckoned with. There is a false narrative that
Americans are using cash less now than ever before.

In point of fact, cash in
circulation continues to grow strongly. What you've seen happen are
electronic forms of payment, taking other electronic forms of payment
or checks out of the system. Cash transactions
are still dominant. Cash is the second most used form
of payment in America today after debit cards. Millennials are the ones leading
the charge toward a cashless future. A report from Experian in
2019 revealed that one in 10 millennials use their digital wallet
for every purchase, especially on food, rent and ride shares. Pew Research also found that about 34
percent of adults under the age of 50 make no purchases in a typical
week using cash, compared with 23 percent of those ages 50 and older. I'm an older millennial, so my friends
who are not millennials tend to carry that cash around versus my
younger friends who tend to use more of the apps. And even if they did carry cash,
I've seen less of that these days as people start to
use Cash app, Venmo, Splitwise. It just
makes everything easy. As digital natives grow up and
become consumers in their own right and engage in commerce,
they're very comfortable with not only digital means of
engaging generally, but particularly comfortable with engaging
in commerce digitally.

Many businesses around the U.S. have also been adapting to the
higher demand for cashless transactions. Major companies like Amazon, Wal-Mart,
Starbucks and Sweetgreen have experimented with cashless stores
in past years. Part of the reason big companies are
going cashless is to get out of paying expensive swipe fees. Let's take Starbucks, for example,
whose app was the most used online form of payment for years
bigger than Apple Pay for many years. A lot of people mistakenly
think the Starbucks app is about building loyalty or getting
flow or interest. Starbucks has over a billion
dollars sitting in their app.

Yeah that float on your fifty dollars is
nice, but it's a few pennies or tenths thereof. It pales in comparison
to their savings on swipe fee. These companies are looking for alternatives
to getting out of the swipe fee carousel and they're experimenting
with their own digital payment system or building their own ecosystem
and wallets to try and encourage customers to pay
using a different mechanism. The COVID pandemic has also played a
major role in the decrease of cash usage, as bank notes propose a
potential hygiene issue when handled. In June, the Federal Reserve reported
that the central bank was experiencing a coin shortage after
the pandemic effectively stopped the flow of physical currency.

I definitely don't like using cash
because of the germs aspect and not that I was using cash that
much before, but I find that during COVID especially, I just don't want
to use cash as much for this reason. People found that they
didn't want to touch cash and exchange cash. And so over the past six to eight
months, we've seen the use of cash decline even further. And so I think we're at
a tipping point in e-commerce. I think we've accelerated where we were
going to be maybe three to five years and in months
have jumped ahead. And I don't think there's
any turning back from that. Cash and electronic payments both come
with their own unique advantages and disadvantages. The advantage of electronic
payments lies mostly in their convenience. They're simple, they're
efficient, they're safe, they're secure. Cash can be risky in
terms of accepting it, keep holding on to it safely and then
getting it to a bank. A large part of
business loss involves cash. I find that Apple Pay is just
so easy for me or Venmo or these apps just help me
track my payments a lot easier rather than that extra step of
signing in online into my bank account and then tracking
it that way.

However, some lawmakers that support a
ban on cashless business say the practice is a form of discrimination toward
those who don't have a bank account or line of credit. If you're one of the 40 percent or
more of American families who are living paycheck to paycheck, it's not so easy to
just leave a little bit of money in this app and a little bit of money
in that app and a little on this card, a little on that. So cash provides flexibility that a
lot of these other electronic cards don't. In addition, cash is
relatively free, right? People say, oh, you know, people
just apply to credit cards. Well, the majority of Americans
have subprime credit ratings. Their prime credit
cards are expensive. Debit cards? Yes, they offer access
to your bank account. Go over the limit? Thirty
five dollars in overdraft. That's extremely expensive. And that's a cost borne only by people
who are running out of money at the end of the month waiting
for their next paycheck. The Pew Research Center found that
lower income Americans are about four times as likely as higher income Americans
to say they make all or almost all of their purchases using cash.

Transitioning to a cashless world would
also mean that 25 percent of households in the U.S. who are either under banked or unbanked
might not get access to the goods they need. There is a significant
correlation between use of cash, prepaid debit, high end credit
and wealth, and there's a huge correlation between
wealth and race. This is where I'm of two
minds when it comes to going cashless because the social justice
part of me says, hey, we should be carrying cash because
it is discriminating against a lot of lower income folks or
lower socioeconomic folks and just also those small business owners who
are in need of that cash and even using credit cards was
already a problem because it gets charged and they get less of that.

17 percent of African-American and
14 percent of Hispanic households reported having no bank accounts, compared
to three percent of white households, according to the FDIC. Adding insult to injury, our tax
code gives tax breaks to the wealthy who get their credit
card rebates in cold, hard cash. 2 percent cash
back at the register? That's untaxed. Some lawmakers also see cashless establishments
as a violation of the US Civil Rights Act that entitles everyone to
the full and equal enjoyment of goods and services without discrimination on
the grounds of race, color, religion or national origin. And because our payment system
is geared towards helping the wealthy and charging the poor,
there is a significant racial correlation in all of this
and it deeply exacerbates the wealth inequality and racial
wealth gap that permeates America. In 2017, Visa, the world's largest
processor of credit and debit cards, declared a 'war on cash' paying businesses
to help them convert to a cashless payment model. Several major companies like Shake Shack,
Sweetgreen and Amazon Go made announcements to or experimented
with going cashless soon. However, they reverted their decisions
after a public outcry, accusing them of discrimination. Stores that have gone cashless have come
back, in part because it's not fair.

Wealthy people. It's fine if I put 50 bucks on my
Starbucks app and just over time spend a little bit of it. But if I'm working
paycheck to paycheck, if I'm one of the majority of Americans who don't have
a prime credit score, it becomes more and more expensive for me to
turn my physical money into digital money. As of twenty twenty, there is
no federal law that requires a business to accept cash in
exchange for goods and services. However, some states and cities have
begun passing laws that ban cashless stores in order to ensure everyone can
have fair access to goods and services. And that's a goal our industry
shares, and it's a goal our industry is working to advance,
not through legal mandates of this type, but instead through developing
those products and services that allow people, you know, to engage with
cash across the breadth of commerce and again, including e-commerce, which
is an increasingly important channel. In 2020, Senator Bob Menendez and Kevin Kramer
introduced a bipartisan bill named the Payment Choice Act that, if
passed, would effectively ban all cashless stores throughout the United States.

Yet despite all of this, new technologies
have been popping up to make digital payments easier and more
efficient for those with access. I think you're going to see
digital payments in what we call omni-channels, which basically means you're going
to see it in the real world, in store through contactless
payments as well as in line. You're going to see a
lot more people ordering online and maybe picking up in-store
and either flashing a QR code or tapping their phone. The rise in popularity of cryptocurrencies could
also play a major role in the transition to a cashless
future, according to some experts. There is a lot of exploration
right now of digital currencies, including central bank digital currencies, which
would essentially be a dollar, but a digital dollar that's issued by
the Federal Reserve in the same way physical dollars are now. And I know one of the things
that the Federal Reserve is working to determine is whether there are
attributes of a digital dollar that would make it profitable in some
way or they're additive in some way to the system that we have.

Other countries have already tried
to make the switch. There are countries including
Finland, Sweden, Canada, the U.K., all that are making that
move a little more quickly. China has announced a big
push for a digital RMB. And so, again, the push to move
away from cash towards a more digital future. However, experts from both
sides agree that the United States is still far away
from going entirely cashless. The world is not cashless and is
not going to be in the very near future. I do think the pandemic has accelerated
that trend away from cash in a pretty significant way, and I think
that accelerated trend will endure. I do not think we should have a
cashless society, nor do I think Americans want one.

The demand for
cash is very high. The amount of money in
circulation continues to grow. This is as true at one dollar and
five dollar notes as it is at twenty's and hundreds..

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