In today’s fast-evolving retail landscape, consumers are presented with an array of payment options, ranging from traditional cash transactions to the latest digital payment methods. The rise of cashless payment systems, driven by technological advancements and changing consumer behavior, has sparked a debate on whether we are moving toward a cashless society.
But what are the benefits and drawbacks of cash and cashless payments, and how can retailers and consumers navigate this evolving environment?
The Case for Cash Payments
It’s becoming increasingly common to hear people say they never carry cash anymore. And if you walked into a store and asked customers how they would be paying, you might think that most people would say with a card.
But you know what they say: Cash is king.
The Benefits of Cash Payments
Even with the far-reaching popularity of digital payments, cash still persists as a significant player in the retail space. According to research by Capital One, U.S. consumers spent $846 billion in cash in 2022.
But what’s so great about cash payments?
It’s the Ground Zero for Transactions
The thing is, cash is a classic. It’s the one form of payment that can typically be relied on as an option wherever customers go. However, cash payment options are becoming less reliable as the U.S. continues to shift towards an entirely cashless payment system — even though many still prefer to use cash.
Moreover, there are still many people who have no choice but to use cash. This is especially the case for the almost six million households in the U.S. who don’t have bank accounts to facilitate cashless transactions. Thus, only offering cashless payments significantly narrows retailers’ customer pool.
No Transaction Fees
There’s nothing more irritating for retailers than getting hit with transaction fees. Generally ranging from 1.5% to 3.5% of a transaction, retailers know all too well that these seemingly small percentages can add up quickly and reduce their bottom line.
Fortunately, cash transactions do not incur any additional fees.
The Cons of Cash Payments
There are always two sides to every story. Accordingly, cash also has its downsides — particularly in today’s modern retail environment.
It’s Inconvenient
Who hasn’t been stuck in line behind someone counting out coins? Similarly, who hasn’t had to wait for a cashier to get more bills or coins from management to make change? And, perhaps most telling of all, who hasn’t abandoned the check-out line because a cash transaction was taking too long?
The truth about it is that cash payments are slower. And in the world of retail, frictional experiences like this can significantly affect customer satisfaction, loyalty, and, ultimately, completed sales. Moreover, retailers can process considerably more card transactions than cash in a set amount of time.
The Case for Card Payments
Cashless payments, particularly credit and debit cards, seem to have become the favored norm among consumers and retailers alike. So why is everyone embracing cashless transactions?
The Benefits of Card Payments
According to Capital One’s report Cash vs. Credit Card Spending Statistics, consumers are 72.2% more likely to use credit cards rather than cash for any given transaction. But why?
It’s Convenient
There’s no denying the appeal of quick and easy card payments. According to a Pew Research Center survey, about four of 10 Americans favor cashless options when making weekly payments. In addition, Capital One’s report showed that more than 80% of shoppers prefer to pay with cards over cash.
Since tapping or swiping a card speeds up transactions and reduces wait times, automation in retail via cashless payments substantially reduces friction in retail and yields smoother shopping experiences. In turn, this can lead to customer loyalty and help boost retailers’ bottom lines.
Higher Spending Rates
A study from the University of Adelaide found that consumers tend to spend more when using a cashless payment option rather than cash. And when you combine that with consumers’ avid interest in taking advantage of credit card companies’ spending rewards, the result for retailers is substantial.
Retailers can take advantage of consumers who are keen to whip out their cards to complete purchases of all kinds and sizes, securing their role as the necessary — and profitable — middleman.
The Cons of Card Payments
As unlikely as it may seem, there are still downsides to card payment options.
Transaction Fees
As previously mentioned, card payments are often accompanied by multiple transaction fees. This can significantly add up for retailers over time, negatively impacting their bottom line. Although retailers can pass this fee on to their customers via a surcharge fee, customers don’t like being subjected to that fee either. As a result, surcharges can discourage customers from pursuing additional transactions with the retailer and take their business (and their money) elsewhere.
Customer Divide
As discussed in a previous section, a considerable portion of the U.S. doesn’t have access to cashless payment options. As a report from TIDEL demonstrates, businesses that institute cashless-only payments put these “consumers at a disadvantage” as they “cannot participate in the digital economy.” And as an NAACP Resolution emphasizes, this exclusion has the potential to push cash-paying consumers to “the edges of the economy.”
Therefore, the popularity of cashless payments withstanding, it’s in the best interest of retailers to preserve their cash payment options. In fact, a growing number of states are working to ban cashless retail establishments, including Maine, New York, Ohio, and Arizona.
Navigating Payment Options
The question is, how do today’s retailers refine their payment options?
Well, the answer is a bit more nuanced than you might expect.
Every consumer wants to feel wanted and valued, and offering both options is sure to make them feel like they matter to the retailer. Moreover, cash and card payment options yield the broadest, most inclusive base of potential customers.
Thus, the strategic approach to retail payment options involves a blend of both cash and cashless options. By understanding the strengths and limitations of both payment methods, retailers can navigate their options with confidence.