The Rise and Fall of the Cashless Store

Does the technology have a future?

February 18, 2020

ALEXANDRIA, Va.—The concept of the cashless stores has been praised as innovative and convenient—and charged with sowing inequality, reports Business Insider.

In 2017, the FDIC announced that cash represented only 30% of all payments, according to the Harvard Business Review. So, it was no surprise when big brands began pushing the idea of convenient cashless shopping.

In January 2018, the first ever Amazon Go store opened its doors, offering shoppers a fully cash-free, checkout-free experience. Amazon envisioned a future nationwide chain of cashierless outlets where customers would walk in, get what they needed and leave. But that didn’t happen.

That same year, Pew surveyed 1,164 individuals who had made a payment in the past month to determine differences in the use of cash. The survey found that 65% of people who said they primarily used cash were unbanked, and 25% made less than $25,000 a year.

"Non-acceptance of cash could potentially marginalize those that have limited access to the financial system or mobile technological devices," according to the Congressional Research Service, a public policy think tank run through the Library of Congress.

Opponents of cashless retailers charged that they were denying service to consumers without access to banks. Lawmakers in major U.S. cities took aim at the cashless stores. New York City, PhiladelphiaSan Francisco and the state of New Jersey have nixed cashless stores and now require retailers to accept cash from paying customers.

The Federal Reserve Bank of San Francisco published a note in August 2019 called "Cash Me If You Can: Impacts of Cashless Businesses on Retailers, Consumers, and Cash Use," which listed pros and cons of cashless retail. Benefits included reduced cash handling costs, inoculation against theft and faster transactions. But it also found that cashless businesses promote financial exclusion, make life more difficult for consumers who prefer using cash and were tied to retailers racking up credit card fees.

"We do continue to see interest in retailers or merchants in managing or reducing the cost associated with cash handling," said Alex Bau, director of data and policy analysis of the cash product office of the Federal Reserve System. "We haven't necessarily heard of an increase in the number of cashless businesses, but the cost factor is always in their mind."

Given the legislative backlash that occurred, it would appear that cashless technology is about to be history. But the 2019 report from the Congressional Research Service noted that cash's "hegemony as a payment system appears to have come to an end, as electronic payment systems have gained popularity, and the ubiquity of cash acceptance for in-person purchases also seems precarious."

Cashless options within stores still pose an opportunity for retailers. Bau said that in his office's discussions with retailers and merchants, businesses want to accommodate the customer. "In general, retailers want to meet the customer where they're at for a payment option," he said.

While a cashless society might be unfeasible currently, adopting cashless technology, yet maintaining a baseline ability to accept cash, may be the ideal strategy for some businesses.

The popularity of certain "payment instruments" may spike or wane, but they rarely fade away entirely, Bau said. The same goes for cash, even as retailers weigh a more omnichannel approach to payments.