Discrimination or Innovation? How Cashless Stores Help and Hurt Retail

The old adage holds that cash is king — but these days, bills and coins are losing steam.

While most stores offer the option to either pay with credit or cash, some retailers, most notably e-tail behemoth Amazon with its Go stores, have experimented with ditching dollars in favor of cards and e-payments.

But despite the national debate over the ethical implications versus the benefits of taking the cashless route, few stores in the footwear and apparel sector have actually tested the model.

“Cashless stores are fairly uncommon and many businesses actually prefer cash payments in order to avoid credit-card transaction fees,” said Stephanie Martz said, senior vice president and general counsel of the National Retail Federation (NRF). “The majority of small purchases are still made in cash, and we don’t expect that to change anytime soon.”

Still, pioneers of the model have lauded its benefits — including lower incidence of theft, faster transactions and more convenience in accounting — as part of retail’s larger move to embracing technology and innovation.

“In approaching a cashless model, what we’re really talking about is the utilization of electronic payments, which brings with it additional levels of security, additional levels of sophistication to some degree but simplicity as well,” said Amy Zirkle, interim CEO of the Electronic Transactions Association. “Oftentimes, electronic-based programs bring greater solutions for accounting [and] greater solutions for managing inventory.”

Paying with cash has long been a budgeting reminder because consumers are more conscious of the money they’re parting with when using physical bills and coins. Cutting paper money entirely could thus lead to higher purchase totals, explained Dr. Jay Zagorsky, a senior lecturer in markets, public policy and law at Boston University’s Questrom School of Business.

“The biggest benefit for retailers is that people spend more money using credit cards and debit cards than using cash; there’s a dissociation,” he said. 

On the flip side, more credit card transactions for stores means more transaction fees. Banks typically take a cut of 2-3% from merchants for each credit card purchase, Zagorsky explains. The cumulative effect of these fees could lead to increased prices, which, in turn, means shoppers will buy less.

“While there are some conveniences [associated with going cashless], those conveniences come with a large downside: higher prices and fewer customer purchases,” he said. “To me, it doesn’t make sense for anybody to go fully cashless.”

Despite the potential for raised prices, research shows many customers, particularly young people, prefer the convenience of not having to carry physical bills and coins. In a 2018 Capital One survey of American consumers, nearly one-fourth of respondents said they rarely carry cash anymore, with millennials using credit cards at the highest rate.

But what for some customers is a preference is for others not an option. Using credit cards or mobile payments necessitates access to a bank account, which often entails conditions not possible for everyone, like maintaining a minimum balance or having consistent direct deposits. For this reason, some believe cash-free stores are discriminatory.

Roughly 7% of the American population does not have a bank account, according to FDIC’s 2017 National Survey of Unbanked and Underbanked Americans, meaning they lack checking or savings accounts. Individuals and families with lower incomes and less education are less likely to have cards, as are Black and Hispanic Americans.

Concern over the ethical implications of going cashless has created widespread debate, leading several states and cities to take legislative action. In March, Philadelphia became the first major American city to ban cashless stores. San Francisco followed suit last month, and New Jersey and Massachusetts have taken similar legislative action. In response, Amazon has agreed to take paper money at its Go stores.

The NRF is against these political measures.

“Retailers should have the right to choose which payments to accept and decide for themselves whether going cashless makes sense for their business,” Martz said. “Instead of micro-managing the decisions of retailers, state and local governments should allow merchants and customers to determine the appropriate market for payment methods.”

Meanwhile, Zagorsky pointed out that there are other issues related to going cashless beyond the ethical debate: Credit card and mobile payments depend upon use of telecommunications and electricity, both of which could be compromised in case of a natural disaster.

“Having stores have the ability to accept cash is really important because disasters don’t happen every day, but when they do, you need backups. And cash is a system that works,” he said.

While cashless stores are still relatively uncommon, they’re an extension of widespread attempts by retailers to innovate the shopping experience amid accelerate digital demands, according to Zirkle. For instance, Nike’s app allows shoppers to scan codes on mannequins, shop looks and pay via their phones. Nordstrom now allows its associates to check inventory while working from the floor using their devices, while retailers like Starbucks are taking advantage of order-ahead technology.

“What retailers are trying to do is engage their customers through a variety of channels, and through convenience, online, interesting checkout solutions, interesting ways to engage customers,” Zirkle said. “It really is, at the end of the day, about consumer choice.”

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