Should Your Business Go Cashless?
King Cash has never faced so many challengers.
While it’s not unusual for small business owners to question whether the cost of accepting credit and debit cards is worth the fees charged, some entrepreneurs are considering going in the opposite direction. They’re weighing the pros and cons of going cashless.
No longer accepting cash can offer your small business several advantages:
- Safety. No need to store or transport cash, reducing the chance of robbery.
- Fraud reduction. Cash can be an easy target for employee theft as well.
- Time/cost savings. Cash deposits don’t have to be taken to a financial institution or picked up by an armored car service.
- Faster purchases. Credit and debit card purchases are often processed faster than cash purchases, since the latter require the cashier to make change.
Increasingly, Americans are becoming quite comfortable paying with debit or credit cards, and adoption of newer technology such as digital wallets is increasing. In 2018, just over 91% of Americans age 15 or older made or received some type of digital payment. And card payment growth increased by 10% by number of transactions (and 8.4% by value) from 2016 to 2017.
Cash isn’t completely dead though. Consumers who said cash was their preferred payment method was slightly up in 2018 to 14% of consumers surveyed versus 12% of respondents in 2017.
Know Your Customers
If the idea of no longer accepting cash intrigues you, your first consideration should be your customer’s payment preferences. You need to realistically assess whether eliminating the option to pay with cash will drive away a significant amount of business. If a large number of your sales are for small dollar amounts, for example, you could wind up losing those customers since cash is often popular for small purchases.
In addition, there are certain types of businesses where a significant portion of customers prefer to pay with cash. According to the 2018 TSYS U.S. Consumer Payments Study, 32% of consumers surveyed prefer to pay with cash at fast food restaurants, and 30% prefer cash when paying at coffee shops. On the other hand, only 7% chose cash as their preferred payment method at a department store.
Overall, as income increases, the preference for paying with cash goes down. Somewhat surprisingly, though, younger consumers are not necessarily the most likely to choose a non-cash method of payment. In the TSYS survey, those over 65 were least likely to prefer paying with cash (11%).
Do the Math
It can be helpful to track sales carefully in order to determine both the percentage of total payments and the amount of total receipts paid by cash over a month or more. It’s unlikely you will lose all of those sales, as some customers would likely use an alternative payment method if needed. Nevertheless, you should evaluate the impact on sales if those customers no longer shopped at your business.
Weigh that loss in sales against the time saved with faster payments (perhaps resulting in more transactions), fewer trips to the bank, and reduced fraud or security costs, if applicable. Consider testing a temporary transition period (perhaps starting with slower days of the week) to gauge customer reactions before you fully commit to refusing cash payments.
You’ll also want to think about the impact on the reputation of your business: what happens if customers complain on social media or leave negative online reviews due to this policy? A barrage of complaints could drive away customers who don’t pay by cash, but feel the policy is unfair.
In most cases, a business is not under any obligation to accept cash. However, two states—Massachusetts and New Jersey—and a few localities—notably, Philadelphia and San Francisco—require businesses to accept cash when presented for payment in most cases.
Review Your Merchant Account
Before you go cashless, review your merchant account. You’ll need to evaluate whether your business is fully equipped to take a variety of non-cash payments such as Apple Pay or Paypal. According to research commissioned by JP Morgan Chase, just 36% of merchants accept digital payments, even though half believe their customers expect them to. And nearly 40% of small business owners believe upgrading their systems to do so would be costly.
Start by talking to your current merchant processor. If adding additional payment options will require costly upgrades in equipment or force you to switch to a different merchant processing platform, make sure that additional sales will justify the cost.
The World Bank. “The Little Data Book on Financial Inclusion 2018,” Page 156. Accessed Oct. 31, 2019.
Board of Governors of the Federal Reserve System. “The Federal Reserve Payments Study: 2018 Annual Supplement,” Accessed Oct. 31, 2019
TSYS. "2018 TSYS U.S. Consumer Payments Study," Page 40. Accessed October 31, 2019.
TSYS. "2018 TSYS U.S. Consumer Payments Study," Page 44. Accessed Oct. 31, 2019.
Commonwealth of Massachusetts. "Massachussets General Law Part III, Title IV, Chapter 255D, Section 10A," Accessed Oct. 31, 2019.
New Jersey State Legislature. "New Jersey bill A581 AcaScaSa (3R)," Accessed Oct. 31, 2019.
City Council City of Philadelphia. "Amending Chapter 9-1100 of The Philadelphia Code," Accessed Oct. 31, 2019.
City and County of San Francisco Board of Supervisors. "Police Code - Acceptance of Cash by Brick-and-Mortar Businesses," Accessed Oct. 31, 2019.
Forrester Consulting. “The Intersection Of Payments And Commerce In A Digital World,” Pages 3-4. Accessed Oct. 31, 2019.