Cloud Topics

Cashless Payment Advantages and Disadvantages: Should Your Business Go Cashless?

By Nicole Lim / Jul 03, 2020

Multiple dollar bills

Simplicity is an important goal in some business models. The simpler you can make operations, the fewer chances of something going wrong, and the easier it can be to run your company successfully. Some businesses in the retail and service sectors have been pursuing a simpler model by going cashless. They allow payments with cards or through apps, but they do not accept cash.

Businesses operating in the cloud marketplace and processing recurring transactions as part of a subscription commerce model have no real alternative to cashless payments; however, for those with some physical presence or who must support a combination of e-commerce traffic and in-person retail, cashless is still an important trend to understand.

Cashless Business Trend

Cashless retail stores are becoming more common: in 2019, cash was used in just 26% of transactions, down from 30% the year before. When a store goes cashless, it stops accepting physical cash and only allows customers to pay for goods and services with a debit or credit card, or through a payment app.

Credit cards are not new; they have been in use since the 1950s. Debit cards and payment apps like Google Wallet and Apple Pay have made cashless payments the easiest and fastest option, and cashless payment solutions continue to improve.

Some countries like Sweden have even set the goal of being totally cashless in the future. The entire world is not ready to go cashless, however. The Pew Research Center notes that, though more people are not using paper money, at least 70% of Americans still make some cash purchases every week. Roughly a quarter of American households are also still either underbanked or completely unbanked, which would push them to the margins in a society that goes completely cashless.

So, where does this put you as a business? It depends on your business and how the specific pros and cons of cashless operations will affect your bottom line and relationship with your customers.

Advantages of Cashless Transactions

There are significant advantages to going cashless. Businesses who do not have to manage paper money can save time and streamline both the checkout process and bookkeeping.

No Cash Processing Costs

Businesses that go cashless do not have to deal with the costs and fees associated with handling paper money. Banks may charge fees, for example, for counting and accepting coin deposits. Businesses that have lots of cash often have to pay for armored car services.

Small businesses spend billions of dollars per year on cash processing costs, but those that choose to go cashless avoid these expenses.

Checkout Efficiency

Cash forces you to deal with physical items. You need to train your employees to use the cash register, give the right amount of change, and count how much money they’ve collected at the end of the day.

You also need to hire enough employees to take care of those tasks. At peak hours, you need to ensure that you have enough cashiers to handle the customer flow. The checkout process can also inconvenience customers who may need to wait in line longer to check out.

Going cashless means checkout happens faster. There is no counting of money, and payment gets validated automatically. A faster checkout can be a great way to make a good first impression on new customers.

Less Risk

Another problem that comes with keeping cash in physical form is the risk of theft. Paper money is easier to steal and almost impossible to track once stolen.

Though break-ins or armed robberies are a danger, so are more subtle thefts, such as thieves who shortchange cashiers. In some cases, cashiers themselves turn out to be thieves and skim money from cash registers.

Since third-party processors handle cashless payments, there is no cash on-hand to steal.

Save Time

Going cashless may not only save time at checkout, but it can bring more efficiency to other business operations. Some bookkeeping tasks can happen automatically. You or your employees won't have to count the cash, balance register drawers, or physically deposit money into a bank.

Accounting Peace of Mind

Going cashless may allow you to automate specific accounting and bookkeeping tasks. This automation can be especially welcome when filing taxes because all the transaction data, including sales tax information, is organized and at your fingertips.

You can also send transaction data to other tools or databases to improve customer service, product selection, or marketing.

You can import transactions into your accounting software, which can assist with record-keeping and give you easy access to profit data. Automation can help reduce human error that is always possible with traditional accounting.

Not only does this save time and keep you from having to retain a professional accountant, but it also provides peace of mind in the knowledge that all the information that you could need is available and properly organized.

Disadvantages of Cashless Transactions

Cashless payments can bring significant advantages, but they also have some important disadvantages. Some of these drawbacks might not be obvious at first, but businesses need to account for them when choosing to stop accepting cash payments.

Transaction and Processing Fees

Even without businesses going entirely cashless, they have to deal with the burden of high transaction and processing fees. Credit card companies charge processing fees that account for 1.3% to 3.4% of the purchase amount.

Businesses with tight profit margins can actually lose money on some transactions because of these fees.

The United States currently has not set a cap on the fees that credit card companies can charge. Cashless businesses are at the mercy of these companies when it comes to transaction and processing costs.

Poor Customer Service

Some businesses have tried to go cashless but rolled back the decision after an adverse reaction from their customers.

A cashless business will have to turn away customers who try to pay with paper money. Even customers who pay with cards or apps sometimes like the option of paying with cash when they have it.

Some people use cash for budgeting reasons, while others receive tips or cash payments from their jobs. A cashless business would have to turn these people away or demand that they pay with a card or app.

Customer Exclusion

Some people have no other payment option besides cash. These people may fall into the category of unbanked or underbanked. Businesses who do not accept cash cannot offer products or services to people without access to electronic payment methods. In some cases, not accepting cash can might be seen as a form of discrimination because it forces these people to leave your store and shop elsewhere.

Technological Difficulties

Technology is not perfect. While electronic payment processing can be convenient and fast, it can also be unreliable. If a payment processing system goes down, you cannot accept payments. A cashless business cannot take paper money as an alternative, so its operations will have to stop entirely until the system returns online.

Though outages can happen because of a technical glitch or malicious attack, it could also be something as simple as a power outage or internet service failure.