Cash versus cashless retail

Cashless retail stores have several benefits, which is why many businesses are opting to go cashless. Firstly, convenience, cashless retail stores are more convenient for customers who don't have to carry cash with them. No need to have heavy coins in your pockets. Consumers can quickly pay with credit or debit cards, smartphones, or other digital payment methods. More commonly, digital payment is often contactless. For the merchant, there is no need for a cash float in each checkout-till that’s essential to give the exact change in notes and coins.

Cashless transactions are more secure than cash transactions, which are vulnerable to theft and counterfeiting. Digital payments also provide a trail that makes it easier to track fraudulent activity. Cashless transactions are faster than cash transactions. Customers can make a payment quickly and move on without having to wait for change or count out cash. Cashless retail stores can save money on cash handling, counting, and storing. They also reduce the risk of errors and losses due to human error.

Digital payments provide a detailed record of transactions, which can help retailers better track sales, inventory, and customer preferences. Merchants can use this rich data to perform data analytics to determine spending patterns, trends and if coupled with Artificial Intelligence, merchants can get incredibly smart at inventory management, keeping store of specific items in specific store locations, according to the demographics of the local community and, for example, the needs of ethnic groups or different age groups. You can’t perform any data analytics on a cash payment as there is limited linkage between the cash amount and the products purchased. Improved marketing efforts, inventory management, and other aspects of the retail business can only be better for the store and its shoppers. Cashless retail stores make it easier for consumers who don't have easy access to physical bank branches to participate in the economy. They can make transactions digitally, without having to worry about carrying cash or going to a bank ATM. Overall, cashless retail stores offer a more streamlined, efficient, and secure shopping experience for both customers and retailers. Amazon Go, Tesco, Carrefour, Kroger, Pret, Le Bon Marché, and many others have gone cashless or piloting cashless store operations.

There are several economic benefits of cashless retail, including - reduced costs. Going cashless can reduce the costs associated with handling, storing, and transporting physical cash. This can lead to cost savings for retailers, which can be passed on to consumers through lower prices or improved services. Although there isn’t much evidence these savings are passed on to the consumer, savings are more likely to be invested back into the store operation.

What about the regulatory considerations of cash?

In the United States, it is legal for a store to refuse cash payments if the refusal is not based on discrimination. However, some states and cities have passed laws requiring businesses to accept cash as a form of payment. For example, in Massachusetts, businesses are required by law to accept cash as a form of payment for goods and services. The law was passed in 1978 and was designed to protect consumers who may not have access to credit or debit cards. In New York City, a similar law was passed in 2019 that requires most businesses to accept cash as a form of payment. The law was passed to ensure that people who do not have access to credit or debit cards are not excluded from making purchases.

It's important to note that businesses that choose to refuse cash payments must clearly communicate this policy to customers in advance. This can be done through signage, website information, or other forms of communication. Additionally, if a business chooses to accept cashless payments only, it must ensure that they are not discriminating against customers who do not have access to these forms of payment.

In general, in the US, it is legal for a business to refuse cash payments, but it's important to be aware of any relevant laws and regulations in each specific US state.

California does not have a state-wide law requiring businesses to accept cash payments. However, some cities in California, such as San Francisco and Los Angeles, have passed local laws requiring businesses to accept cash. In San Francisco, businesses that serve the public, such as retail stores and restaurants, are required to accept cash as a form of payment. The law was passed in 2019 and is aimed at promoting financial inclusion and ensuring that all consumers have equal access to goods and services. This obviously proved to be a big issue for Amazon Go – one of the pioneering cashless stores.

In Los Angeles, a similar law was passed in 2020 that requires most businesses to accept cash as a form of payment. The law was passed to ensure that low-income and elderly residents, who may not have access to credit or debit cards, are not excluded from making purchases. It's important to note that laws and regulations related to cash payments can vary depending on the jurisdiction. Therefore, businesses need to familiarize themselves with any relevant laws in their area and ensure that they are not discriminating against customers who prefer to use cash.

In the United Kingdom, there is no legal requirement for businesses to accept cash as a form of payment. However, businesses are required to accept a range of payment methods, including debit and credit cards. There is no specific law in the UK that prohibits businesses from refusing to accept cash payments.

In France, on the other hand, businesses are required by law to accept cash payments for transactions up to a certain amount. Since 2021, a regulation was put in place that states the maximum amount for a cash transaction in France is 1,000 euros. Transactions above this amount must be made by bank transfer, card, or check (i.e., bank cheque) – yes – that’s a handwritten paper bank cheque. However, businesses may refuse to accept cash payments for certain types of transactions, such as real estate purchases or transactions with non-residents.

In Germany, businesses are required to accept cash payments as a form of payment, unless they have specifically notified customers in advance that they only accept other forms of payment. However, there is no legal requirement in Germany for businesses to accept all forms of electronic payment.

In Italy, businesses are required by law to accept cash payments for transactions up to a certain amount. As of 2021, the maximum amount for a cash transaction in Italy is 3,000 euros. Transactions above this amount must be made by a bank transfer or another digital form – such as a credit card or debit card. Additionally, in Italy, businesses that operate in sectors that are considered to be a public utility, such as pharmacies, post offices, and public transportation companies, are required to accept cash as a form of payment.

In the Netherlands, businesses are not required by law to accept cash as a form of payment. However, there is a voluntary agreement among several organizations in the country to ensure that consumers have access to cash payment options. The agreement is called the Cash Agreement, and it was created in response to concerns about the declining use of cash and the potential impact on financial inclusion.

Under the Cash Agreement, businesses are encouraged to continue accepting cash as a form of payment, and consumers are encouraged to continue using cash as a payment option. The agreement also includes measures to ensure that cash continues to be widely available, such as through the maintenance of a network of ATMs.

Which retailers are cashless or piloting cashless?

Sweetgreen, a salad restaurant chain in the United States that does not accept cash. Customers can pay with a credit card, debit card, or through the Sweetgreen app. Continuing the theme of salads, the US restaurant chain Just Salad is another outlet that has implemented a cashless policy. Customers can pay with a credit card, debit card, or through the Just Salad app.

The coffee shop chain in the UK, Caffè Nero, has implemented a cashless policy in some locations. In these locations, customers can pay with a credit card, debit card, or through the Caffè Nero app. Also in the UK, the sushi and noodle restaurant chain, Itsu, does not accept cash. Customers can pay with a credit card, debit card, or through the Itsu app. Itsu has taken a step further and started to replace human cashiers with touch-screen self-service kiosks. The London-based, Sourced Market, a food market, has implemented a cashless policy. McDonald's in the UK and France at some locations in these countries have implemented a cashless policy also.

The supermarket chain in France, Monoprix, has implemented a cashless policy in some locations. In Germany, the use of cash is still very prevalent, and most businesses accept cash as a form of payment. However, there are some retailers that have implemented a cashless policy, including Dean & David, a healthy fast-food restaurant chain in Germany that does not accept cash. Also, L'Osteria, an Italian restaurant chain in Germany, has implemented a cashless policy. Also in Germany, Mymuesli, a customized cereal retailer does not accept cash.

In the Netherlands, while businesses are not required to accept cash, most still do. However, there are some examples of retailers that have implemented a cashless policy, including: AH to go, a convenience store chain does not accept cash. In some locations of the Burger King in the Netherlands have implemented a cashless policy.

Finally, in Italy, businesses are required by law to accept cash payments for transactions up to a certain amount. However, there are some exceptions to this rule, such as for businesses that operate in sectors that are of public utility. In the private sector, retailers that have implemented a cashless policy, include, Eataly, a food market and restaurant chain has implemented a cashless policy. Obicà, also a restaurant chain has implemented a cashless policy.

The common theme is casual dining and quick service restaurants are prime sectors to go cashless. This makes sense, where the transaction amount is relatively small, and the number of transactions is high. Grocery supermarkets and convenience stores are also suitable for going cashless.

Cost of Cash

The cost of accepting cash can vary depending on several factors, including the size and type of business, the volume of cash transactions, and the location and local regulations. Here are a few factors that can contribute to the cost of accepting cash include, cash handling.  This is related to the need to have systems in place for counting and verifying cash, storing, and securing it, and transporting it to the bank. These cash-handling systems can be time-consuming and may require hiring additional staff, investing in cash-handling equipment, and incurring security costs. This is probably the biggest cost element in the cost of cash. Furthermore, the acceptance of cash can increase the risk of cash loss and theft, which can lead to financial losses for the business. Referred to as cash shrinkage or cash leakage. This risk can be mitigated through cash handling procedures and security measures, but these measures can also be costly.

Finally, there are bank fees. Merchants that deposit cash in the bank may be subject to fees, such as deposit fees or cash handling fees. These fees can add up over time, especially for businesses that handle a large volume of cash transactions. Prime counting, for example, is where a bank will negotiate the cost of counting and sorting the cash with the retailer and place the responsibility of this with the retailer. Several large retailers which handle large amounts of cash will count and sort the money on behalf of the bank to reduce their cost of cash acceptance.    

Overall, while it's difficult to estimate the exact cost of accepting cash for a specific business without more information, the cost can be significant and may be one reason why some merchants are choosing to go cashless.

So, what is the cost of cash? This is a very difficult question to answer. There are simply too many variables involved. There have been studies conducted at a national level to estimate the cost of cash. There are a few examples. In 2017, the European Central Bank (ECB) published a study on the social and private costs of cash payments in the euro area. The study estimated that the total social cost of cash payments in the euro area was around 84 billion euros per year, which includes the costs of producing, transporting, and storing cash, as well as the costs of cash handling, security, and fraud prevention for businesses and governments. The study also estimated that the private cost of cash payments for consumers and businesses was around 60 billion euros per year, including the costs of time and resources spent on cash transactions, and the risk of loss or theft.

In 2018, the Bank of Canada published a study on the cost of cash in Canada. The study estimated that the total cost of cash payments in Canada was around 15 billion Canadian dollars per year, which includes the costs of producing, distributing, and processing cash, as well as the costs of cash handling and security for businesses and governments. The study also estimated that the private cost of cash payments for consumers and businesses was around 3 billion Canadian dollars per year.

In the United States, a study by Tufts University estimated that the total cost of cash payments in the country was around $200 billion per year, which includes the costs of producing, transporting, and storing cash, as well as the costs of cash handling, security, and fraud prevention for businesses and governments. The study also estimated that the private cost of cash payments for consumers and businesses was around $40 billion per year.

It's worth noting that these studies are estimates, and the actual cost of cash may vary depending on the country and other factors. Additionally, while there are costs associated with cash, there are also benefits, such as the convenience and accessibility of cash as a payment method. However, can we say there is a trend that retail businesses are moving towards a cashless operation? The short answer is yes, in certain areas, such as hospitality and convenience stores. Where the transaction value is higher and less frequent, such as fashion retailers, they are already cashless but may not advertise the fact they are cashless. The pandemic was obviously a turning point for many retailers to stop accepting cash.  

Payment Acceptance Strategy

Optimising payment acceptance for retailers is a huge strategic challenge. Payments are not complex, but the choice of payment methods is growing and the ability to integrate and accept them is becoming hard work. Going cashless is right for many businesses. Cashless shops may become a reality sooner than we believe. Will retail be cashless within the next 5 years, next 10 years or never? There are many different answers to this question depending on where most of your retail operation is located – is it in Sweden, in India, in Brazil or in Germany. There will be different answers for different countries. Many retailers are dealing with complexity in optimising digital payment acceptance, and taking cash out of the system is one step that many have not regretted. EDC has decades of experience establishing a payments strategy, evaluating, and selecting the right payment partners to achieve payment optimisation for leading businesses around the world. If you want to learn more, do not hesitate to contact EDC.

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The content of this article does not reflect the official opinion of Edgar, Dunn & Company. The information and views expressed in this publication belong solely to the author(s).