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The High Cost of Going Cashless

Cash Rules Everything Around Me

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Whether its technology, public institutions, or slang, no aspect of culture has been left unaddressed by those speculating on the characteristics of future societies. However, while warp speed drives and “Nadsat” are still firmly in the realm of fiction, one potential facet of the world of tomorrow may be closer to reality. Through the experiences of patrons of various eateries in New York City, a recent New York Times article sought to give readers a glimpse of the transition to a “cashless” world, where all transactions are conducted electronically.

Broadly speaking, the reaction of customers, upon discovering that they could not pay for their $10 salad with cash, was a mix of mild incredulity and annoyance. It is a reaction that the author treats as mere growing pains in the face of what is undoubtedly progress. The author goes on to muse that, one day, museum visitors will be looking at dollar bills along with other artifacts of a past, presumably more backward, time.

An era where people traded rectangular pieces of paper adorned with the images of past leaders, many with checkered records on human rights, for goods and services. Additionally, the people who still utilize money, in its material form, will be seen as delightfully backward, akin to certain Pacific Islanders who still utilize large stone discs as a form of currency. However, the reaction of those interviewed is neither a surprise nor a good litmus test for what the transition will be like, especially for the most vulnerable.

Based on their places of occupation and residence, those quoted largely appear to be from affluent socioeconomic classes or other groups that are least likely to face barriers to financial inclusion. However, this piece is indicative of a habit that exists when discussing the intersection of technology and society. A trend that often leaves those who might be left behind by the adoption of new technology, the reasons why they did not adopt, and the consequences as mere footnotes, hand-waved away in the name of a teleological notion of progress. To combat this tendency, any discussion of a shift to a cashless society demands engaging with the populations that might be disadvantaged by the transition and how it might further their marginalized.

The Unbanked and the Underbanked

Essentially, there are two groups which would find themselves most impacted by the shift to a cashless society, the “unbanked” and the “underbanked.” While the Times article makes one, brief mention of the unbanked, linking to a piece about “Fintech” startups, the actual implications for those who do not have, or regularly use, bank accounts for their financial services are left unexplored. Therefore, to begin, let us understand the demographics of those who compose these two groups.

The FDIC has identified that roughly 7 percent of the U.S. population does not have a bank account, however a further 20 percent are considered underbanked. These underbanked, despite having a bank account, regularly utilize alternative financial services, such as payday lenders and check cashing businesses, both of which charge higher fees for services that could be rendered at a bank.

Statistically, people of color are far more likely to be either underbanked or unbanked. As of 2015, 54 percent of Black households and 46 percent of Latino households fell into one of these categories, as compared to 19 percent of white households. Low-income families and families with volatile monthly-to-monthly incomes are similarly more likely to belong to one of these categories. Finally, rural families are more likely to be unbanked and underbanked than urban families.

Economic reasons are the primary cause of individuals being, and remaining, unbanked or underbanked. When surveyed, approximately 58 percent of unbanked individuals cite not having enough money to keep in the account or the account fees as their primary reason for not having one. While ostensibly trivial amounts, bank accounts, and the debit cards attached to them, usually require an initial deposit to open and minimum balance to maintain.

2015 FDIC Survey on reasons for being unbanked
2015 FDIC Survey

Other vulnerable populations find themselves especially at risk of being financially excluded. While not impossible, individuals who are homeless or lack permanent residences are often unable to meet the requirements to open a bank account. Similarly, the requirement of a Social Security Identification Number, or Individual Taxpayer Identification Number, to establish accounts makes it unduly difficult for undocumented immigrants.

Furthermore, some banks exclude those from creating accounts who have criminal convictions as the result of financial crimes, such as fraud. Additionally, all banks require government photo ID to open an account, further excluding those who lack the means to obtain the ID. An associated issue to consider when discussing the unbanked and underbanked is a phenomenon known as “banking deserts.”

The term banking desert is used to describe any 10-mile radius that lacks a traditional financial institution. As of 2014, the Federal Reserve of Saint Louis has identified 1,132 such deserts in the United States, affecting 3.74 million people. However, there are a further 1,055 areas only served by one branch, making them vulnerable to becoming a desert in the future, with the potential to affect another 3.9 million.

The number of banking deserts has increased over the past 2 decades. This is largely the result of financial deregulation of the 1990s, which allowed for branches that serve low-income communities, many majority-minority, to close in favor of those in neighborhoods with higher earning potential. The 2008 financial crisis only exacerbated this trend.

This dynamic of strategically underserving communities should be familiar to those aware of the history of redlining, and more recent examples of predatory lending behavior, and its effect on wealth within communities of color, as well as the negative perception of traditional financial institutions within those communities. A perception that contributes to the use of alternative financial institutions while forgoing banks.

While the predatory nature of check cashers and payday lending operations has been well established, the ways in which traditional financial service industries prey upon low-income consumers are often left unexplored. One example being overdraft fees, which have the effect of making alternative services not only more attractive, but also more economically viable for low-income individuals.

Currently, overdraft fees cost account holders 15 billion dollars annually, with 18 percent of account holders paying three or more overdraft fees a year, and 50 percent of that group paying 10 or more fees a year. While check cashers may charge larger fees up front, overdraft fees can rapidly spiral beyond what a low-income earner could reasonably expect to be able to repay, leading to avoiding opening or using accounts. Additionally, excessive overdraft fees have long-term financial effects, such as being grounds on which one could be denied an account in the future.

As opposed to addressing these issues, the author of the Times article simply asserts that the establishment’s prices ($3 for coffee and $8 or more for lunch) would exclude them anyway. Although, it is worth noting that the majority of transactions under $10 are conducted with cash, due to the economics of processing fees and practicality. Also worth noting, casual bigotry aside, is that there is a qualitative difference between exclusion based on not having enough money and not having the correct money. Especially when one considers the possible consequences of establishing what is essentially two economies, separated and stratified by the type of money used.

A Tale of Two Economies

It is not hard to imagine, as the result of specific neighborhoods and cities going cashless, “banking deserts” becoming “banking desert islands,” further exacerbating the problem of segregation based on wealth that already exists in cities and across the country. It has the potential to cement a second-class citizenry, distinguished by one’s access to different forms of money and, therefore, different goods and services. After all, it is one thing to feel out of place while in certain communities, and it is another to be unable to access goods and services there due to certain formal policies.

Also within the realm of possibility is that certain goods and services might eventually be entirely unavailable to those who lacked the right form of money. Furthermore, it seems reasonable to assume that buskers and panhandlers will simply disappear from parts of cities where loose change is no longer common. However, there is no need to merely theorize as cities and countries are already going cashless, with predictable results for the financially excluded.

In Amsterdam, many homeless people who earned money by selling a street magazine known as Z! found themselves losing customers as they lacked the ability to contend with the general population’s shift to digital. Though they experimented with accepting digital payments, the technology proved to be too cumbersome and the homeless population largely lacked the bank accounts necessary. At the far end of the cashless spectrum is India, which experimented with demonetization in November 2016.

In what was ostensibly a move to curb “Black Money,” Modi announced that 500 and 1000 Rupee notes would cease to be legal tender. This had the effect of voiding 86% of the cash in circulation. While more affluent Indians had little trouble, either by adopting the use of mobile wallet programs or by replacing the bills with the newly printed 500 and 2000 rupees, those who were less affluent, rural, or participated in the informal economy fared less well.

Workers in rural areas became unable to access banks or pay for necessities such as food, water, and rent. Those who could reach banks were met with incredibly long queues. Some waited in line to the point where they collapsed and died due to exhaustion. Others were unable to pay for treatment for life-threatening diseases and died as a result. One woman committed suicide due to inability to pay for food after finding that her life savings were now worthless. A year later, many villages have reverted back to using cash for practical reasons.

However, the dangers of transitioning to a cashless society go beyond solely restricting the access to certain goods and services. There is the very real risk of social and moral values being ascribed to those who, regardless of reason, still use cash.

Cashless Cultures

Sociologists and anthropologists have often failed to engage with the symbolic value of modern forms of currency. The role that money type serves in communicating social status and position of members of “primitive” societies has been well researched. Unfortunately, there does not exist a similar body of research for modern money.

Money in modern societies has largely been considered qualitatively neutral and utilitarian. Deemed, due to its nature as an equalizer, to lack the ability to contain or communicate any intrinsic symbolic or social value, apart from the quantity of it one might have. However, that would be prior to formal policies existing that deem cash obsolete. Although, even now, it is not hard to conjure up examples of how specific money might have special symbolic value by nature of how it was earned or what use one has in mind for it.

Poverty being associated with the use of cash seems plausible as expensive neighborhoods, goods, and services become associated with being cashless. Similarly, the Times piece hinted at another consequence of such policies. In comparing cash to the large stone discs used by indigenous on the Isle of Yap, the assertion being that those who still utilize cash in the cashless future will be viewed as lacking progress. While the social implications these two stigmas might have are troubling, there is another issue.

More problematic is the potential for cash to become associated with crime and those participating in the informal economy. While cash may never be criminalized, it is not hard to believe that there might be a certain amount of criminality ascribed to those who utilize it. In fact, this is something that already occurs. Police regularly seize large sums of cash, through asset forfeiture, from those carrying with the explicit rationale that had it been obtained legally it would be in a bank.

No Money, Mo Problems

To presume that establishments are making these changes primarily to discriminate against the poor would be rash, because there are other practical reasons why these policies are attractive to businesses and governments. However, the fact is, intent aside, that these policies are discriminatory. In response to a comment left by a reader, the Times admits that the legal scholar they consulted did refer to the policies as such, though that was left out of the article. The only distinction being that they are legal forms of discrimination, as systemic discrimination based on signifiers of wealth, and potentially legal status, is still allowed. Certain states, such as Rhode Island, have gone so far as to pass legislation, such as a “Homeless Bills of Rights,” in order to combat this tendency by organizations.

However, this critique should not be taken as a wholesale condemnation of the idea of moving toward a cashless society. In reality, the unbanked and underbanked do shoulder a high cost, but it is not by nature of their dependency on cash. Instead, it is due to their exclusion from financial institutions, which are often guilty of preying on them. As a result, perhaps it is time to reinvigorate the conversation on Postal Banking as an essential part of public infrastructure prior to going cashless. That is, at least until we are all using bitcoin or the spice.

Written by B. Sutton

B. Sutton

I am the host of The Discourse and, occasionally, I do anthropology. Follow me on Twitter @PrettyBadLefty.

B. Sutton is a Writer for Progressive Army.

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Ira Dember
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The author concludes with: “…perhaps it is time to reinvigorate the conversation on Postal Banking as an essential part of public infrastructure…”

As it happens, I wrote this piece a couple of years ago: http://www.truth-out.org/speakout/item/32126-us-must-choke-off-predatory-payday-loans-and-create-low-cost-public-option-banking

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The High Cost of Going Cashless