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For certain businesses, it makes sense to leap into a cashless future today. After all, only one in four people carry cash on them, and only accepting cashless payments means more efficiency, a decreased risk of theft and more spending.
Yet becoming a cashless business is not so simple. Whether or not you should go cashless will vary largely on your industry, customers and how many transactions are already made a day with a card.
The relationship between card payments in small businesses has always been precarious. Many of us have likely accidentally tried to pay at a small local business, only to discover it doesn’t accept cards. Or if it does, there’s a minimum purchase amount enforced.
This is because of the interchange fees charged by credit card merchants. The fees typically take a percent of a transaction, usually 2–4%, and can cause a business to actually lose money on small purchases.
However, the popularity of cash has continued to decrease over the last ten years, as more convenient, secure and accessible card payment options like chip-readers and Square have emerged in the United States. Both credit card companies and large businesses have an incentive to push initiatives that support a cashless society, as they stand to gain from this financially.
In 2017, Visa launched its Cashless Challenge for restaurants, offering the business $10,000 if they stopped accepting cash. For card companies, less cash means more money made on transaction fees.
In 2018, Starbucks tested its first cashless location in Seattle to determine how cashless payment affects its business and customer experience. Since it has a popular pre-order app and specializes in efficiency, eliminating the time-wasting exchange of bills is the next natural step.
If these cashless operations feel sudden, keep in mind the United States is behind the trend in cashless purchases compared to the rest of the world. With only 92% of adults having made a cashless payment, the U.S. trails behind countries like Sweden, where 99% of adults have made a cashless payment. Great Britain, Canada, France and Germany also come out ahead of the U.S. in cashless payments. For many, moving towards a cashless society isn’t a thing of the future — it’s simply catching up.
Ultimately, each year the number of non-cash transactions increases. Last year saw a 10% increase from the previous year. While an entirely cashless business isn’t common now, it certainly could be in just a few years.
For the business owner, there are plenty of reasons to eliminate cash in-store. For the most part, it’s just more convenient for the cardholder and clerk. It eliminates much of the hassle that’s typical with more traditional methods of payment.
With cash comes dealing with and moving a physical item. Employees need to be trained to use a cash register, make change and count their drawers at the end of the day. All that cash must be accounted for, and an armored truck must pick up the bills. Some estimates put all this extra time lost at a cost of $10,556 a year. With only electronic transactions, it is also easier to automate and track sales and record trends in purchases and products.
Though only 9% of small businesses experienced a burglary or robbery last year, many people would feel safer if they didn’t keep any cash on hand. Even if you aren’t concerned about robbery, eliminating your cash in store will prevent the risk of employees from stealing from the cash register.
Since accepting a card payment takes much less time than cash, your business’s efficiency at the checkout could increase tremendously once you eliminate cash exchanges. For businesses that frequently see long lines and impatient customers at peak times, switching to a card-only system can vastly improve their experience. With excellent, fast service, your customers may be more likely to tell others about your business and return themselves.
For some small businesses, the benefits they’ll see just isn’t worth losing out on potential customers or paying extra fees. There are a few other problems to consider.
Cashless stores can create a backlash, because it can exclude those that don’t have bank accounts, which is around 7.5% of the population. This is additionally problematic because these people tend to be poorer than card and non-cash users. According to Pew Research Center, adults making less than $30,000 were four times as likely to say they made most or all of their purchases with cash, compared to those making more than $75,000.
Already the fees imposed on businesses for swipe-based transactions are an estimated total of over 70 billion a year. Switching to an all-cash business may allow you to serve more customers, but you’ll have to consider whether you actually come out on top financially.
There’s also a larger concern that in a cashless society, the top ten credit card companies, which between them already hold a 90% market share, may raise the transaction fees further. The United States currently has no cap to the fees they can charge, and though the average fee is only around 2%, this seems massive considering the European Union caps fees at just .3%.
While you may eliminate the risk of thieves stealing physical cash, your business may become a target for hackers. Using cash apps, contactless payment and swipe payments creates multiple new ways for others to steal bank account information.
There are other things you should take into account before eliminating cash. For one, not every city allows a cashless business. Philadelphia was one of the first to ban them, and it’s possible more cities will follow.
Specific to your business, you should determine the size of payments customers are typically making. About 60% of in-person payments under $10 are made with cash, but that percentage drops rapidly the larger the purchase. If your sales are always under $25, you may be better off sticking with cash. You’ll also need to consider how much cash typically makes up in earnings and weigh for yourself on an acceptable percentage before switching.
Additionally, there are certain types of businesses where people come to expect being able to use cash. For example, 32% of people prefer using cash to a debit or credit card when at a coffee shop.
Finally, the issue isn’t black and white, and the solution doesn’t have to be either. It’s possible to encourage card payments in your business without altogether eliminating cash. You can incentivize card payments with rewards or even simply use signs that say “card encouraged.”
A version of this article was first published on Fundera, a subsidiary of NerdWallet.