The concept of a cashless society has been around for decades. But with 80% of payments in the US being made digitally in 2022, and four in ten of us ditching change altogether, research suggests that the transition from physical currency could take place sooner than we once thought.
Yet, while the convenience of contactless POS payments remains unmatched, and climbing interest rates accelerate the transition to digital payments globally, the majority of Americans aren’t on board with going fully cashless. This poses a pressing question for businesses — is 2024 too soon to consider going cash-free?
We talk to financial experts and collect the receipts to gauge how likely it is that the US will switch to a fully digital economy anytime soon. We also weigh up the benefits and drawbacks associated with going cashless, to help you decide if it’s the right move for your business.
Use the links below to jump to specific sections, or scroll down to learn more about the reality of going cashless in 2024.
What Does ‘Cashless Society’ Mean?
A cashless society is one where cash, coins, and all forms of physical tender aren’t used for financial transactions. Instead, payments are made through digital payment methods like debit cards, credit cards, mobile wallets, and mobile payment apps.
When Will Society Become Cashless?
While it’s impossible to accurately predict when the US will move to a fully cashless society, a Gallup survey reveals that 64% of Americans believe that all payments will become electronic at some point in their lifetime, with the figure jumping to 70% for those under 50.
“Today you can actually conduct all aspects of your life without ever spending a single dollar bill.” – Mario Almonte, Managing Partner at Almonte PR
The popularity of cash payments has been dwindling for some time, but the method took a massive hit during the first year of the pandemic when the portion of cash-based transactions fell by 7% to just 19% of all transactions. The trend toward digital currency has accelerated ever since, with the number of card and phone payments climbing higher each year.
Due to the accessibility of digital payment options, Mario Almonte, managing partner of the financial PR company Herman & Almonte explains that for many US citizens, a cashless society is already here. “Every vendor offers cashless payment options,” Almonte tells Tech.co, adding “today you can actually conduct all aspects of your life without ever spending a single dollar bill”.
But the phasing out of paper and coins isn’t just taking place on home soil. While no fully cashless countries exist, cash is used in less than 15% of transactions in Sweden, and the value of cash now only represents 1% of the country’s GDP. Similar rates have been recorded across other Scandinavian nations, while Hong Kong predicts cash will account for only 1.6% of point-of-sale (POS) transactions by 2024.
But despite this global shift away from tangible currency, the US isn’t likely to transition officially any time soon. Despite popular belief, the government has no plan to make paper money worthless and the majority of Americans aren’t ready to make cash a thing of the past either — with 56% of Gallup respondents revealing they like to have cash with them at all times when they leave the house.
What Are the Benefits of a Cashless Society?
Not convinced of the advantages of going cashless? Here are some reasons dropping cash could benefit businesses, and society at large.
Improves convenience
Unsurprisingly, the biggest reason businesses decide to go digital is convenience. Compared to the six to seven seconds it takes to process a cash payment, it only takes one to two seconds for contactless payments to go through. Digital systems also help to streamline practices by eliminating the need for bank runs and extra POS accessories like cash draws.
For consumers, it’s also easier to carry around a mobile device and/or lightweight cards, compared with heavy bags of coins or wads of bills.
Saves costs
Cash handling costs small US businesses billions of dollars each year. By leaving physical currency behind, businesses no longer need to cover banking costs associated with depositing and processing cash.
However, with the average POS charging credit card processing fees of 1.5% to 3.5% per card-based transaction, digital payments can rack up too so it’s important for businesses to conduct their own cost-benefit analysis.
Helps to prevent fraud
Research from the Bank of International Settlements revealed that the $100 bill accounts for 80% of US bills in circulation. And why is this? Physical cash is much harder to track and trace, making it the method of choice for criminals and fraudsters.
Switching to digital payment methods has been shown to reduce instances of money laundering and improve financial transparency in countries like Sweden and China. It also makes instances of burglary much less common, helping to give business owners extra piece of mind.
Boosts consumer spending
Research shows consumers spend 160% more on credit card transactions than they would on cash transactions. This is hardly surprising. Spending money using tap payments and Venmo feels much more abstract, making it easier to part with money without giving it much thought.
While this isn’t ideal for the bank balance of consumers, it can provide valuable opportunities for businesses looking to maintain healthy profits throughout these economically turbulent times.
What Are the Disadvantages of a Cashless Society?
So going cashless sounds great, right? Well, while phasing out physical tender can deliver clear benefits to businesses, it’s important to be aware of the potential drawbacks of a cashless society, too.
Increases financial exclusion
Unfortunately, a cashless reality isn’t accessible to us all. Around 5.9 million US households are currently unbanked, meaning that the occupants rely on cash to make daily purchases. By making digital methods mandatory, the most marginalized members of society will be placed further on the back foot, not to mention the impact this would have on members of the homeless population, who often rely on cash donations from the public in order to get back on their feet again.
Doug Carey, a chartered financial analyst and CEO of WealthTrace shares these concerns about financial exclusions. “Cashless payments can be a barrier for people who do not have access to technology or who are not familiar with digital payment systems,” Carey tells Tech.co, emphasizing that the elderly and low-income individuals could be hit particularly hard.
Increased risk of cybercrime
While cashless businesses aren’t likely to encounter traditional burglaries, digital systems are much more vulnerable to cyber attacks, and these types of crimes tend to cost businesses a lot more. In 2022, cyber attacks cost many US SMBs over $100,000, with 41% of businesses reporting cyber attacks cost them over $500,000.
According to Statista, almost a quarter of US companies experienced a cyber attack in 2022, and 4% of these businesses reported losses of over $1 million.
Lack of privacy
Since digital payments leave a digital trail, lots of experts we spoke to raised concerns around data privacy, including Cyrus Vanover, founder of personal finance site FrugalBudgeter.
“A cashless society could make it easier for governments and financial institutions to track individuals’ financial transactions, raising concerns about privacy and surveillance” Vanover tells Tech.co, adding “when it happens, people will lose all transaction privacy.”
Mandatory negative interest charges
If we ditched cash for good, normal citizens wouldn’t be able to avoid paying negative interest rates imposed by central banks to curb the impact of inflation. Examples of this have already been seen in Japan, when the national bank introduced a policy that charged its users a negative interest rate of 0.1% back in 2016.
While these quantitative easing policies were designed to encourage spending and investment activity, it erodes the value of a consumer’s cash over time, and oftentimes, fails to generate economic growth.
Steps Businesses Should Take Today
Going cashless won’t be right for every business. If you make a large portion of your income through cash payments or primarily serve demographics who still consider cash to be king — such as elderly consumers and those from lower socio-economic backgrounds — removing cash may cut off vital streams of revenue.
Certain states and cities prohibit cashless businesses too, including Connecticut, New Jersey, Massachusetts, and Pennsylvania, making ditching cash in these locations impossible.
However, if you’re looking to streamline your checkout experience and tap into the ever-growing digital payments economy, embracing tech for cashless payments could prove to be a wise decision for your business.
For those serious about taking the next steps, POS systems offer streamlined ways for businesses to accept and manage digital transactions. Most POS systems let you accept a wide range of digital payment options including e-wallet, bank transfer, and contactless (including Apple Pay and Google Pay) – with our top-rated provider Square even offering buy now pay later (BNPL) and split-payment options.
They’re also packed with extra POS features like end-to-end encryption (E2EE), stock management, and sales reporting, helping you to handle a range of business processes from one centralized system, while keeping your data safe and secure.
With smart tech like POS systems making the switch to digital easier than ever, businesses shouldn’t leap into a cashless future blindly. Physical currency isn’t becoming obsolete any time soon, so it’s important to weigh up your options before deciding to go fully cashless in 2024. Ensuring you can accept some cashless payments though, is essential to keeping with today’s trends and customer expectations.
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