Cash is slowly disappearing, and not because anyone is stealing it.
It’s been elbowed out by the use of debit cards, credit cards and online transactions, a trend that will accelerate with the arrival of ApplePay and other technology that transforms mobile devices into charge cards. And it’s about to be hit by another wave, as payment technology gets installed in cars, bicycles, clothing and nearly everything else via the so-called Internet of Things.
The San Francisco Fed reported that in 2014, only 14 percent of consumer purchases were made in cash; the rest were in some form of electronic commerce.
“As a result of the low need for cash in the general economy, people don’t carry a lot of it,” said Harry C. Hagerty, president and chief financial officer of Sightline Payments LLC in Las Vegas.
Although Hagerty says there’s good news for Las Vegas in that nearly all casino purchases are made in cash, that doesn’t apply to the general marketplace. In fact, bankrate.com reported a survey showing that 81 percent of consumers had less than $100 in cash on them.
So how must businesses, employees and consumers alike adapt?
William “Bill” Robinson, assistant professor of economics at UNLV’s Lee Business School, says businesses must realize that consumers “are going to come after them in many different ways: credit cards, debit cards, gift cards, PayPal, Bitcoin, etc., and they need to be ready for all of it.
“And those businesses that don’t adapt? They die,” Robinson said.
Mae Worthey, vice chair of the Clark County Business Development Advisory Council, recalled a story of someone giving a cab driver cash, “and the driver was brought to tears because he had not eaten: All of his riders had paid with credit cards for the past 24 hours, and he had no money to eat with.”
The moral: Few ever think about it, but small businesses have to wait for money from card transactions to appear in their accounts.
“This means that small businesses are going to have to be even more savvy with their income,” Worthey said.
Beyond that, many patrons don’t appreciate having a transaction fee passed on. Businesses must either figure a way pass the fee along, absorb it or risk losing customers.
“I would rather pay an extra 50 cents for my item, without knowing, than to pay that 50-cent fee,” Worthey said.
Scott Seegmiller, chief financial officer of WestCorp Management Group, says his firm processes about 60 percent of its rent payments online, and encouraging all residents to pay online.
“We have had to change our processes, but more, train the residents on how to pay online.” Businesses must embrace technology, he adds, or “lose a large share of the market.”
Companies that don’t accommodate a broad range of electronic payments will inevitably lose customers, Worthey says.
“There are many of us who simply don’t go to the bank and don’t have cash,” she said. “I can go weeks without having cash in my purse. I usually grab some cash back when grocery shopping — other than that, I use my card for gas, restaurants and I pay bills online. My hair salon, nail salon, wax salon all take credit and debit, so these were the last places at which I was using cash.”
Worthey says electronic payments are accepted at all businesses she patronizes.
“I avoid places that require you to get cash out of their ATM machines, at which I will pay my bank a fee and the machine a fee,” she said. “I will simply go elsewhere. When my friends and I are collecting money for things, such as concert tickets, we pay each other through PayPal or Google Wallet.”
But what about tipping? As use of cash declines, Robinson said it could become an issue.
“You can’t slip someone $5 for doing good work” if you’re not carrying cash, he said. “The IRS will be very happy; people who work for tips, not so much.” Dispensing with cash also “makes life tougher for the little guy,” he said.
“The food truck person or the budding entrepreneur who now has to pay fees every time he sells rather than getting the cold, hard cash. How about the kid down the street who mows lawns? Now, the 12-year-old has to deal with PayPal instead of just getting a five-dollar bill.”
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Flying in the face of the trend are concerns over privacy and security of electronic payments.
“First and foremost, the hackers win” in the absence of cash, said Michael Johnson, managing partner of the Sporting Life Bar in Las Vegas. “Visa will simply up their charges, if real credit exists at that point. But I believe credit will evaporate.”
By 2025, Johnson said, “we will be in a world where Big Brother will know your financial situation. You will put your fingerprint, with heat signature, on most things to get it approved.”
Robinson cited a study that the Soviet KGB did for the Kremlin in the 1970s to determine the best way for the government to control the populace, which concluded that an electronic payment system was the best and cheapest method.
“The government would always know where you were and what you were doing,” Robinson said. “It also makes hackers very happy, because more of what we do becomes accessible to them. If you are not paranoid, and don’t believe someone is watching you, then it’s no big deal. But privacy will continue to be impacted, and risks associated with the financial system increase.”
Rather than be afraid of this technology because of security concerns, Worthey feels Americans should continue to embrace it, “and by doing so, security will get better and better.”
“For example, the implementation of the chip is making it safer to use your card,” she said.
Resisting advancements in payment technology due to security concerns, she said, was like avoiding driving because of fear of an accident. “Given the amount of transactions taking place by the minute, proportionately, the chances of fraud are infrequent, I imagine,” Worthey said. “There was a time when we feared online shopping, but now there seem to be few issues, especially since credit-card companies have tight security and will refund your money in fraud cases.”
Any time she uses her card at an unusual location, Worthey receives an automated call from her credit-card company checking to be sure it was not fraudulent.
“It’s annoying,” she admitted, “but I appreciate the security. Companies should embrace this as a convenience-factor for shoppers who will use credit cards if they don’t have the (cash) for that emotional purchase.”
As consumers, Worthey concluded, “we need to be cautious because we are at greater risk of accumulating more debt and spending more freely, because plastic doesn’t feel real, like spending cash.”
The greatest resistance to change will understandably come from those least comfortable with technology.
“As this trend continues, the older generation — baby boomers — will be most affected,” said Tim Agosti, the principal of Arctic Food Service Design in Alaska. “We grew up with the mentality that cash is king. Now it’s all electronic numbers on a computer screen, or Bitcoin.”
The realities of commerce, however, will ultimately win out. Eventually, Agosti says, credit-card issuers will force businesses to comply with the new payment standards “or they will lose their merchant contract. For those who continue to not accept credit/electronic payments, fewer and fewer people will patronize their businesses.”
The need to adapt, it seems, rests on both sides of the transaction.
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How can businesses adapt to the dwindling use of cash? According to the experts, these are some of the best ways:
• Try the Square, which turns a smartphone or mobile device into a card or chip reader.
• Set up a PayPal account, which allows users to pay online using funds from their own PayPal or bank accounts, or with a credit card.
• Explore Bitcoin, the digital asset and payment system that some see as an investment to be purchased in the hope they will rise in value like gold or silver.
Buy an ATM for the holdouts who insist on sticking with cash. They frequently pay for themselves in about six months.