Cashless payments have increased during the coronavirus pandemic, accelerating an already growing trend. The result is more swipe fees for merchants, which may ultimately lead to higher prices for consumers.
- The pandemic has caused many consumers to spurn cash and rely more heavily on credit cards and other non-cash payment methods.
- The spike can be attributed to changes in consumer behaviors, including more online shopping, touch-free payments, curbside pickup, and no-contact deliveries.
- Many merchants are also encouraging the move away from cash, which may ultimately result in higher prices for consumers.
Cash Is Not King in the Time of Covid-19
Many medical experts have declared that paper currency is not a major source of coronavirus transmission. But that hasn’t stopped merchants and consumers from shying away from cash transactions, opting instead for touch-free payments.
What’s more, interactions that might normally involve cash, such as shopping in-store or ordering a pizza and tipping the delivery driver, are being replaced by no-contact delivery, curbside pickup, and online shopping.
Merchants are also discouraging the use of cash. The percentage of "cashless businesses" almost quadrupled in less than two months after the pandemic began, according to payment processor Square—going from 8% on March 1 to 31% on April 23. The company considers a business to be cashless if 95% or more of its transactions come from debit and credit cards.
Merchant Fee Increases on Hold but Scheduled to Rise
Both Visa and Mastercard were scheduled to hike their merchant swipe fees earlier this year, but they postponed the increase due to the pandemic. While it’s unclear when they’ll get back on schedule, an increase could affect merchants and consumers more than similar changes have in the past.
This is primarily due to the fact that cash customers have historically helped subsidize their cashless counterparts by reducing the total amount merchants have to pay in swipe fees. But with more consumers using cashless payment methods, merchants may be forced to increase prices across the board to maintain profit margins.
Cash Remains the Only Option for Many
Meanwhile, a significant number of Americans have no means of payment other than cash. Six percent of American adults are "unbanked," according to the Federal Reserve, which means they don’t have a traditional checking or savings account. Using population estimates by the U.S. Census Bureau, that comes to more than 14 million people.
For the unbanked, cashless payment methods are often out of reach. And if consumer spending habits continue to accelerate toward a cashless society even after the pandemic is over, that could leave the unbanked, as well as many older Americans who continue to rely more heavily on cash, out in the cold.
In response to these trends, some states and cities, including New York, Massachusetts, Philadelphia, and San Francisco, have passed or are in the process of passing laws requiring merchants to accept cash payments. Federal legislation, the Payment Choice Act of 2020, has also been introduced to forbid merchants from declining cash, charging cash customers a higher price, or posting notices saying they don’t accept cash.