The TechCrunch Exchange - Cash is nice

Saturday, July 23, 2022

Welcome to The TechCrunch Exchange, a weekly startups-and-markets newsletter. It's inspired by the daily TechCrunch+ column where it gets its name.

When I visited London recently, I found it hard to spend even one pound in cash: Cashless transactions were more than encouraged — they were often mandatory. However, cash payments are still very much a reality for American cannabis dispensaries and in emerging countries. But are we ready for the end of cash? Let’s explore. — Anna

Image Credits: Nigel Sussman

Forced to pay by card, or forced to pay cash?

There is no doubt that the COVID-19 pandemic has made it less common for people to use cash to pay for their everyday purchases.

Because of hygiene and social distancing measures, merchants who used to frown upon letting customers pay small amounts by card are now encouraging contactless transactions. And with many outdoor activities simply out of the question, cash was more often hoarded than it was spent.

Contactless payments are here to stay. It seems to be a net-positive for consumers, especially in countries like the U.S., where ATM withdrawal fees commonly reach $3, making cash-only transactions that much more painful when that’s the only option.

American cannabis dispensaries are a striking example of an industry forced to transact in cash. Because marijuana is not federally legal, these businesses can’t use banks — you have to pay in cash upon pickup or delivery, even when you make a purchase online.

As we reported earlier this week, Dutchie Pay is a new payment solution that hopes to reduce reliance on cash in America’s legal cannabis industry. It confirmed in its testing period that having to use cash causes friction and attrition, and when given the option to set up ACH payments, customers end up spending more.

But the inconvenience consumers face is nothing compared to the headaches businesses have to endure.

The cost of cash

Cannabis dispensary owners like Joshua Kahn, whose family runs the Takoma Wellness Center dispensary in Washington, D.C, deal with the problem every day. “Running a business that deals primarily in cash is expensive,” Kahn told TechCrunch, explaining why Dutchie Pay is appealing on more than one level.

Dealing with banknotes, coins and cash registers is a big hassle. “Cash creates more costs, complexities, and inefficiencies across the board. We estimate that we spend approximately $10,000 a month in cash management costs for things like bank fees, employee time and armored truck pickups,” Kahn explained.

The mention of armored trucks for delivering cash to the bank serves as a reminder that cash doesn’t have a cost only for businesses; it’s also expensive for society as a whole. And it is not just about security issues and robberies.

In an argument against the high usage of cash, the Central Bank of Nigeria (CBN) listed some of its alleged negative consequences. Using a lot of cash results, the CBN argued, “in a lot of money outside the formal economy, thus limiting the effectiveness of monetary policy,” and it “enables corruption, leakages and money laundering, amongst other cash-related fraudulent activities.”

The CBN isn’t the only institution concerned with the fraud and corruption that cash enables. Most countries limit how much cash you can bring across borders, and many also cap cash transactions.

In Spain, the cap on cash transactions is pretty low. A new antifraud law passed in 2021 states that “operations in which any of the intervening parties act as an entrepreneur or professional, with an amount equal to or greater than €1,000 or its equivalent in a foreign currency, cannot be paid in cash.”

While understandable from an antifraud perspective, cash-averse measures can be inequitable with the unbanked, and that’s one of the reasons why the European Central Bank (ECB) isn’t happy with Spain’s decision.

Inclusion first

In an opinion on limitations on cash payments, the European Central Bank’s president Christine Lagarde wrote that “cash is a crucial payment method for the elderly, immigrants, the disabled, socially vulnerable citizens and anyone with limited access to digital services, and, as such, serves inclusion.”

Being underbanked is also a first world problem, it turns out. “In the Euro area, there are 13.5 million adults who are unbanked and rely mostly on cash,” Fabio Panetta, member of the executive board of the ECB, said in a 2021 speech.

Of course, the problem of inadequate financial inclusion is even bigger in emerging countries. When I spoke with Mexico-based lending startup Paisa a few weeks ago, its CEO Ryan Newton explained that most remittances are received in cash.

It’s not just person-to-person payments that are often disbursed in cash. According to the World Bank’s 2018 Little Data Book on Financial Inclusion, “companies pay wages in cash to about 230 million unbanked adults worldwide.”

From credit card providers to fintechs, many companies are now hoping to profit from the transition away from cash and are therefore advocating for it. If the slightly bothersome amount of the content marketing and think tank material I came across when researching this topic is anything to go by, there’s quite a bit of money to be made from getting rid of physical money.

Let’s just hope that authorities and financial actors don’t put the cart before the horse by going cashless before financial inclusion is a reality.