Are we heading towards a cashless future?

Apr 26, 2019

As backlash against cashless stores spreads in the US, GDR’s SVP Global Innovation Alex Sbardella assesses the pros and cons for retailers and customers, and considers what the future holds.

 

Looking from a futurist perspective focusing on innovation and digital technology, you could be forgiven for thinking that we’re sweeping unchallenged towards a cashless world. In the EU the value of cashless transactions has increased by 250% in the last decade, while the number of Amazon Go stores in the US is now in double figures. Digital-powered supermarkets, like FreshHippo and 7Fresh, and unmanned convenience stores also proliferate in China and are spreading.

But during the last month it is the almost inevitable backlash that has been making more headlines. Hot on the heels of the city of Philadelphia announcing that it would be banning cashless stores, Amazon announced it would start accepting cash in its Amazon Go stores, which up to that point was the poster-child for cashierless and cashfree retail in the West.

It is clear that this discussion goes far beyond retail and that there are broader social issues at play here involving some of our most vulnerable groups – the elderly, the unbanked, the homeless etc – which suggests that governments, rather than “the market”, should be taking the lead. But it feels like an important moment for cashless stores and where they will fit into society, so I wanted to dig a bit deeper.

 

The advantages of cashless

Amazon Go

 

I think it’s important first of all to distinguish between “cashless” and “checkoutless” stores – you don’t have to go full on Amazon Go or require everyone to sign up with an app to get all the benefits of cashless, as every food market stall around the world that accepts contactless card payment will attest. Similarly, checkoutless is a much bigger change to the customer journey than just cashless.

Despite some of the recent backlash, cashless stores offer huge benefits to retailers and large demographics of customers. We all know cash is an operational headache. Cashing up, bank runs, and ensuring tills have enough change are all major timesinks, plus there are the direct costs of security, theft (both from employees and criminals), and counterfeit notes – and even the risk of violent robberies. Going cashless eliminates the majority of these at a stroke.

Cashless operations also speed up the checkout process, and enable major innovations to the shopping journey like Amazon Go or roaming checkout. From a psychological perspective, there’s also evidence that customers will spend up to twice as much when using cards versus cash – it’s easier, they don’t need to stick to the specific amount they have in their purses and wallets, and it doesn’t feel as painful because there’s a lag before they actually have to pay the bill.

From both a financial and philosophical perspective, the benefits appear much more valuable to retailers than the drawbacks, and the majority of customers already choose the ease of contactless anyway. It seems the only thing that will hold it back is legislation, but that could be a significant barrier.

 

An us-and-them kind of situation

An argument broke out when an elderly man tried to pay in cash for a bunch of grapes at a cashless supermarket in Jixi, Heilongjiang province. Photo: Guancha.cn

 

The biggest problem with the move towards cashless (beyond some technical issues like what happens if your internet connection drops, and how employees get their fair share of tips) is that it excludes members of society without bank accounts and smartphones, or who are simply more comfortable using cash.

Philadelphia city councilman Bill Greenlee, who co-sponsored the bill to ban cashless stores in the city, says the new law battles back against elitism in a country where nearly 10 million households are thought to be unbanked. “I can go into a coffee shop across from City Hall that’s cashless and get my coffee and muffin, but the person behind me that has United States currency can’t get the same cup of coffee. It’s a fairness issue; it creates an us-and-them kind of situation,” he said.

This is not just a US issue, it’s a global problem – and we can look to countries further ahead on the road to cashlessness to see how it might play out. In China, three quarters of the population already prefer mobile payments via Alipay or WeChat to cash (having largely skipped over credit and debit cards), hence cashless stores are commonplace. The scenario is perfectly brought to life by a recent story in the South China Morning Post, which details the struggles of an elderly Chinese man attempting to buy a bunch of grapes in a cashless checkout lane without using a smartphone. The man, identified as Xie, tries to pay with cash and is told to leave. He tries to walk out with the grapes but he is stopped by security guards. “I know it’s not right to leave without paying,” Xie said. “But I have real yuan in my hands. It’s not fake money. Why are you humiliating this old man for not knowing how to use WeChat?”

Sweden is a country that pioneers digital innovation, and is even further ahead than China. A 2018 survey by the country’s central bank found that only 13% of Swedes reported using cash for a recent purchase. Yet, despite this, a recent NPR article exploring its move towards a cashless society concludes: “Sweden may be at the forefront of the cashless trend, but it seems the country is still not quite ready for a completely cashless future.”

 

A more nuanced approach

Monzo x The Big Issue

 

As we’ve seen, the issue of cash vs cashless has considerable implications for the nature of society, particularly with poorer, vulnerable or marginalised people, and even tourists who may be locked out of a cashless ecosystem. There are no easy answers, but I think we might start to see regulators experiment with more nuanced solutions than blanket banning cashless like Philadelphia has done.

For example, governments might incentivise businesses to accept cash by making cash handling costs tax deductible, provide government-run cashpoints to ensure people can still get notes without paying large ATM fees, or offer state-run bank accounts and digital literacy training to help the underbanked adapt to the digital economy. Some have even gone as far as eliminating low denomination coins from circulation altogether: Canada got rid of its penny in 2012, and certain EU countries like Ireland and the Netherlands round all cash prices to the nearest 5 cents.

I was also interested to see digital bank Monzo’s recent partnership with not-for-profit British publisher The Big Issue. If you are unfamiliar with The Big Issue, it’s a weekly publication that sells bundles of magazines to homeless people for a nominal fee, so they can set up their own business selling them to the public at a profit. Monzo set up bank accounts for 100 magazine sellers – effectively turning them into digital businesses – and it added QR codes to the cover of the magazine allowing readers to pay directly into the sellers’ bank accounts. Customers could also resell the magazine when they were done with it, with the additional revenue also going back to the original seller. While this is only a campaign that helped a small amount of people, it does hint at the role that clever innovations could hold in integrating the “excluded” into a cashless system in future.

For the time being, retailers must continue to innovate to offer digital-native customers the quick and seamless shopping journeys they crave. But, for now, they must also explore more balanced alternatives that at least consider those who still need or want to shop with cash.

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