With technology continuing to expand and change, as a society we are finding ourselves more and more dependent on the hand-sized computers we can put in our pockets. These days, smartphones can do everything from create breathtaking photographs to paying for our daily cuppa at the local coffee shop.

As a result, more and more retailers and restaurants are encouraging people to pay for their products and services via a smartphone app. Some retailers are even going cashless. However, what does that really mean?

Unbanked and Underbanked

CoinsFor many experts it means that retailers are leaving behind a sizable portion of the consumer market. According to a 2017 survey by the Federal Deposit Insurance Corporation (FDIC), the most recent year available, 25% of American households were either unbanked or underbanked, meaning that they don’t have a bank account or have a bank account, but still heavily rely on alternative means for their financial needs. The FDIC states that, “Families who lack access to the financial mainstream may opt to rely on alternative financial services (AFS) providers, such as non-bank check cashers, payday lenders or pawn shops—many of which may lack consumer protections and can be costly for those struggling to make ends meet.”

The FDIC survey also found that communities of color are particularly affected. Among African-American households, 16.9% were unbanked in 2017 and 14% of Latino households did not have a bank account. Additionally, a 2017 survey by Career Builder found that 78% of workers are living paycheck to paycheck.

So, with this kind of rampant income volatility, why are retailers still going cashless? Some retailers feel that going cashless cuts costs associated with cash management and speeds up transaction times. Retailers also cite security as a factor in deciding to go cashless. If their employees no longer have to handle cash, there is less liability and risk for the retailer.

The Fallout

Some retailers, however, are responding to the resounding backlash stating that refusing cash payment is discriminatory. Amazon Go grocery markets and salad restaurant chain Sweetgreen reversed their decisions to go cashless. Sweetgreen wrote in a statement via, “Going cashless had… positive results, but it also had the unintended consequence of excluding those who prefer to pay or can only pay with cash.”

Lawmakers are also pushing back. Many cities and states have weighed in on the issue of cashless retail. The cities of Philadelphia, San Francisco, New York, and Washington D.C. and the states of New Jersey and Massachusetts have all either passed laws banning cashless retail or are considering bans against cashless retail.

Digital Fingerprint

Digital FingerprintAnother concern of retail consumers is the digital trail left by online or credit card payments. Moving to a strictly cashless economy would also create a digital fingerprint for each and every purchase made by a customer. Not everyone is comfortable with that. If there is a data breach somewhere in the online system, consumers’ purchase history could be out there for the taking. And while that risk may not be extremely high, it’s still a very real risk.

Cash is King

Additionally, cash remains king when it come to payment. A 2018 report from the Diary of Consumer Payment Choice (DCPC) found that “Cash continues to be the most frequently used payment instrument, representing 30 percent of all transactions and 55 percent of transactions under $10.”

The Cost of Credit

To process credit card payments, retailers need pay interchange fees, assessment fees, and processing fees. In turn, the fees go to the card’s issuing bank, the card’s payment network, and the payment processor. With credit card processing fees ranging somewhere between 1-4% per transactions, these fees can really add up. Merchants often find that accepting cash payments cuts down on processing costs.

Meeting Customers’ Needs

Customer paying in cashFor retailers and restaurants to succeed, they need to meet the needs of their customers. Having a variety of payment options, including cash, remains a vital part of top-tier customer service for most businesses. And while each business can and needs to make their own decision when it comes to cashless retail, it’s important to take in all of the pros and cons before taking such a drastic step. While in-app and credit card payments are convenient and perhaps even quicker, cash is still a vital part of our economy.