Rebecca Esparza works with homeless people and, having once lived in a shelter herself, knows what it’s like to navigate the US economy if you don’t have much money.
For most of her clients, cash is king because they lack access to the financial tools many Americans take for granted - checking accounts, debit cards, payment apps.
Ms Esparza worries that the growing number of cashless stores and restaurants around the country will further marginalise low-income people at a time when inequality is already the highest in more than half a century.
“We just forget just how poor the poor can actually be in this country,” says Ms Esparza, who works at the Lawrence, Kansas, affiliate of the nonprofit Family Promise and once sold her blood to support herself and her five children. “I could totally be part of that cashless system today, but it would totally discriminate.”
Legislators around the country agree with Ms Esparza and are taking steps to halt or slow the steady march toward a cashless society. Last month, New Jersey passed legislation banning many kinds of cashless stores, joining Massachusetts, which has a 1978 law prohibiting discrimination against customers opting to use cash, and Philadelphia, which adopted a similar law in February. San Francisco has proposed a ban on stores like Amazon Go and Nestle-owned Blue Bottle, which has stopped accepting cash as a test at some of its coffee shops. Ritchie Torres of the New York City Council is leading efforts to ban cashless retail there, and policymakers in Chicago and Washington, DC have considered similar proposals in recent years.
Proponents of cashless stores tout various benefits. Electronic payments save employees the time it takes to collect, store and transport cash. Theft is less likely. Customers typically move faster through checkout lines because they don’t need to count out their cash and wait for change.
Some argue that technology, having helped usher in cashless payments, can provide a solution. Companies like Square and PayPal offer payment services that don’t require a bank account; they’re gaining some traction with the working poor and could eventually provide an alternative to banning cashless stores outright.
The vast majority of US retailers and restaurants currently accept cash. And those that don’t often cater to wealthier customers. The best-known example is Amazon Go, a chain of cashierless convenience stores that carry upscale fare like artisanal cheeses and locally made chocolates. Amazon.com operates only 10 Go stores in three cities, but eventually could open as many as 3,000, according to sources.
The fear is that if cashless shopping catches on, more and more retailers will follow suit. Many local restaurants are no longer accepting hard currency because handling cash can add as much as 10 per cent to overhead costs, says Richard Crone, chief executive of payments expert Crone Consulting. In five years, he says, a third of all retail will be cashless, up from about 17 per cent today. About 10 per cent of brick-and-mortar stores will be cashless, up from less than 1 per cent today, he says.
“A trillion-dollar behemoth like Amazon has the ability to spread widely throughout the country,” says Mr Torres, the New York City councillor. “So a trend that might start at the margin can proliferate overnight.”
In 2017, 6.5 per cent of US households were “unbanked” and lacked a checking or savings account, according to the Federal Deposit Insurance’s latest available national survey. Another 18.7 per cent fell into the broad “underbanked” category, meaning they had a bank account but used at least one alternative service like money orders, cheque cashing or payday loans.
There are a variety of reasons Americans use cash. Even with a steady income, people living pay cheque-to-pay cheque may not have enough money to keep in an account. Some don’t want to pay the fees; others don’t trust banks or are concerned about privacy.
The homeless are especially vulnerable. If they lose their documents, they often have trouble getting them again. Michelle Jones, 37, who arrived in Seattle in 2001 as a homeless youth, lost her social security card three times and says it was stolen once.
“Even just to get a bank account, of course you need to have an ID,” says Ms Jones, who now works for the Metropolitan Improvement District, a nonprofit helping the homeless population in Seattle’s downtown. “Getting an ID can take months. And during that time they can’t get any work at all. And at that point they are falling more into the pattern of listlessness.”
Another barrier to opening a bank account: lack of steady income. Some only receive cash from begging and don’t have enough money to put in a bank account anyway. Plus many banks require secondary proofs of identity, such as a utility bill and a credit-card statement - which, obviously, homeless people don’t have.
For people trying to climb out of poverty, foregoing cards is also often a necessity to staying afloat. Kat Lilley, who, along with six children, aged 18 months to 12 years, was homeless from the summer of 2013 to early 2014, often had to make ends meet with $761 a month. She used envelopes and cash to better budget expenditures. The envelope system is based on the what proponents say is the whole psychology of people spending less when using cash instead of plastic. You are far more restrained in your spending when you pull money (not plastic) out of your wallet. That's one of the biggest benefits to stuffing cash into envelopes for budgeting purposes, they argue.
“When you are on a shoestring budget, a little hiccup can lead to a snowball of overdraft fees,” she says. “So a lot of families resort to cash.” She encourages the homeless families she now helps as executive director of Family Promise of Colorado Springs to use envelopes to learn how to better manage money.
For technologists, a cashless society is a cherished dream, one that’s already becoming a reality in other countries - even ones with large populations of low-income people. Almost half of Chinese already use mobile phones for cashless payments, according to eMarketer. The Indian government is promoting digital payments in an effort to stamp out endemic corruption and local payment services such as Paytm have been signing up millions of people.
In Sweden, often described as the most cashless society on earth, just 25 per cent of Swedes paid in cash at least once a week in 2017. Now local authorities wonder if money is disappearing too quickly and could hurt people, such as the elderly, who haven’t yet joined the digital age. Swedish legislators are expected to adopt a proposal forcing banks to keep offering cash to customers who require it.
"The US is just weird historically, in that we have a lot of competition and banks don't give accounts to a lot of low-income people," says Mehrsa Baradaran, author of How the Other Half Banks. "We also have a lot of areas in the country where banks aren't locating any more. We have a more stratified society, poverty is more pronounced here than in other places. There are some poorer countries that are mobile; we just have not built that infrastructure."
Many homeless and low-income people currently use Green Dot re-loadable prepaid debit cards. But they come with heavy fees: a $7.95 monthly charge on low amounts, plus as much as $4.95 for every reload and $3 for ATM withdrawals.
Several digital payment services are becoming a go-to for the working poor. Square’s Cash mobile payment app lets users send and receive peer-to-peer payments, arrange to have pay cheques directly deposited and spend their balances using a free Visa debit card. It stores money electronically without linking to a bank account. PayPal has introduced similar capabilities on its platform.
While the Square service wasn’t designed specifically for low-income Americans, it’s becoming a boon to the unbanked and underbanked. “People are using this as their primary spending device and primary banking account, and in some cases, their only banking account,” Square chief executive Jack Dorsey said last year. “We’re reaching an audience - which is consistent with how we started the company - that is underserved, number one, and even to the point of unbanked completely, which wasn’t a stated goal initially but is something that we really love and want to lean into more.”
Chime, a San Francisco-based FinTech start-up, is one of a growing number of so-called challenger banks disrupting the status quo by doing away with the fees charged by traditional consumer institutions. The online service targets people who live payday to payday, offering savings and cheque accounts without minimum balance requirements, monthly service fees or overdraft charges. Chime makes money by collecting part of the interchange fee on its debit card. The company says it added 2 million accounts in the past year, bringing the total to 3 million since its founding in 2013.
“The banks kick them while they’re down with these fees,” says Zach Smith, Chime’s vice president of product. “We’re a bank in your pocket. We’ve built everything from the ground up. That allows us to operate with extremely low costs and then pass those savings onto our members in the form of no-fee services.”
The technology is improving, and at least one advocate for the working poor acknowledges that the likes of Square and Chime are making a difference. Darren Liddell, director of programme innovation at The Financial Clinic, a New York nonprofit that teaches clients how to manage money, says the innovations are a step in the right direction, although navigating financial tech and apps can still be difficult for customers.
To issue a debit card, Cash and Chime both require some personal information, including a mailing address, birth date and social security number, which can still be out of reach for the homeless and people concerned about privacy. “Know Your Customer” rules require financial institutions to verify the identities of account holders.
Other drawbacks include fees associated with depositing or loading cash onto some debit cards, for which third-party merchants often charge, although Chime is looking at ways to make even that free for members. So while there is progress, a representative from The Financial Clinic testified at a hearing last month in support of Torres’s proposed ban on cashless stores in New York.
“The tech solutions that are coming up are innovative and amazing but they haven’t reached our customers in numbers where we think that it’s okay for businesses to stop taking cash,” Mr Liddell says.
“I suspect that there will be a time in America where we’ll start to have those conversations. I just don’t think we’re there yet.”