Brands increasingly seek to provide “frictionless” experiences—a sense of ease and efficiency that enables users to engage with them on their terms. However, in a small but growing number of cases, frictionless means eliminating cash as an accepted payment method.
This is a seemingly minor but significant shift in the retail landscape. As a society, it signals a shift away from inclusive commerce toward what might better be described as the age of the preferred customer.
There’s been growing support from both consumers and retailers to move away from cash in favor of digital payment options. This includes credit and debit cards, as well as newer payment forms like mobile (Apple Pay, Google Pay), peer-to-peer (PayPal, Venmo), and virtual or crypto currencies (bitcoin, etherium). According to one recent survey of over 15,000 global consumers, 47 percent of respondents were “excited about the prospect of a cashless world.” The question is whether this is a good thing for those on both sides of the transaction.
Randy Kohl is head of marketing at Gorilla Group, a Wunderman Thompson Company.
On the surface, the move to a cashless society may seem like a win-win situation. However, the only clear winner would be the federal government. In a cashless environment, money laundering and tax evasion would become much more difficult. For brands and consumers, the change is less clear.
When Sweetgreen, the fast-casual restaurant chain, decided to stop taking cash payments in 2016, it cited a number of valid reasons for the decision. These included the decreased risk of theft, environmental sustainability, and overall operational efficiency. Less than four years later, the chain reversed its decision. Sweetgreen had benefited from the change, but it came with an unintended consequence: The brand was unintentionally self-selecting its customers. For a chain whose mission embraces inclusion—in the form of access to healthy food—the inability to serve all potential customers created a problem that required a course correction.
Interestingly, the pushback against cashless business practices has mostly come at the state and municipal level. The Amazon Go business model is predicated on a cash-free customer experience. But the company’s ambitious expansion plans have been tempered by local government intervention. New Jersey and Philadelphia passed laws requiring that all retailers accept cash payments, and San Francisco, Chicago, New York City, and Washington, DC, are considering similar legislation. Why?
Almost 1 in 4 US consumers (which equates to 32.6 million households) are unbanked or underbanked. That means these people either have no access to banking products like credit and debit cards, or must pay exorbitant fees to use instruments like prepaid debit cards. (It seems counterintuitive, but the highest fees in the banking and credit industries are charged to those who can least afford them.) Denying these individuals access to basic products and services based solely on payment method borders on discriminatory. It’s one thing for luxury brands to self-select their customers on the basis of price point, but it’s another for a retailer to deny access to a person trying to buy a pack of gum.
Beyond the altruistic arguments that merchants use for going cash-free, there’s another, unstated reason they’re drawn to this model: Consumers spend more. Scientific studies dating back to the 1970s have shown a clear correlation between cashless environments and increased consumer spending. For retailers, the payoff can be substantial. In the absence of cash payment alternatives, consumers’ “willingness to pay” can be increased by up to 100 percent.
Increases in average order size can more than offset the roughly 3 percent transaction fee merchants pay to payment processors. It also explains why a growing number of retail environments, from cruise lines to resorts to amusement parks, are implementing cashless transactional experiences. In these cases, customer convenience directly translates to brand profit.
Despite regular reports of retail data breaches, in much of the developed world the use of cash is on the decline. The incentives for brands to abandon cash are also compelling. Still, until there is a viable alternative payment method that caters to all consumers equally, the need for cash will persist. Brands need to consider inclusive commerce a core part of their overall customer experience. Cash may no longer be king, but its place in the retail landscape will remain for decades to come.