Cash Is Still King, at Least in Philadelphia

(Bloomberg Opinion) -- There’s a scene in “The Bourne Identity,” Robert Ludlum’s best-known novel, where the protagonist goes into a pricey Paris boutique and purchases a lot of fancy items for cash. When the owner expresses surprise, the eponymous hero, on the run as usual, tells her that other payment methods leave “spoors in the forest” — meaning, a trail others might follow.

So maybe it’s time for Jason Bourne to hide in Philadelphia. Starting in July, the city will become the latest U.S. jurisdiction to require that most retail establishments accept cash payments. This trend seems to me to strike at the wrong enemy. Supporters argue that cash-free businesses discriminate against lower-income consumers who are less likely to pay with plastic. But if the problem is that the poor don’t have credit or debit cards, there are surely less Canute-like ways of accomplishing the goal.

There’s a widespread perception that cash is on the way out, at least in the developed world. Try handing the taxi driver a bunch of bills these days and you’re likely to face his angry glower because you’ve delayed his search for the next fare. Lots of coffee shops — the sort where the young hang out all day on their laptops — have stopped taking cash. And Amazon, among others, is famously experimenting with mobile-only retail stores.

Is all this bad for the poor? Here’s Bill Greenlee, the Philadelphia councilman who drafted the city’s bill: “It just seemed to me unfair that I could walk into a coffee shop right across from City Hall, and I had a credit card and could get a cup of coffee. And the person behind me, who had United States currency, could not.” And here’s the view of Councilwoman Maria Quiñones-Sánchez, a co-sponsor: “Many Philadelphia families rely on cash for daily needs. While we continue working to expand access to financial institutions for all Philadelphians, no doors should be closed to them.”

Well, let’s think about all of this for a moment. In the second place, if the problem is that poor residents don’t have, say, debit cards, the city’s priority should surely be providing them. Perhaps this is the long-term plan; perhaps, as Quiñones-Sánchez might be taken to imply, the rule is meant to be transitional.

The trouble is that nowadays, accepting cash, like other point-of-sale services, represents a cost for a merchant. Making change, caring for all those coins, even swiping large bills with that magical marker to be sure they aren’t counterfeit: It all takes time and costs money. Businesses that choose not to take cash have decided that the move will reduce their costs ... and thus their prices. Surely lower prices are better for poor consumers.

But in the first place, maybe the higher priority should be moving poor consumers — what are these days called “unbanked” — into the world of debit cards and mobile payments. This move by itself would save them money. Here’s the economist Bhaskar Chakravorti: “For individuals, cash usage imposes a regressive tax with the highest impact on the unbanked. ... The unbanked pay four times more in fees to access their money than those with bank accounts, and they pay $4 higher fees per month for cash access on average than those with formal financial services.”

Moreover, says Chakravorti, those without banking services tend to spend more time each week in the effort to secure cash — for example, by waiting in line at a payday lender.

If the unbanked are spending resources in the simple act of getting and holding cash, one would expect financial institutions to find ways to cut those costs so as to capture some of the resulting surplus. This turns out to be what’s happening. Already, those without traditional accounts use prepaid cards at a much higher rate than the rest of the adult population; the card providers make money from user fees.

Moreover, PayPal’s recent move toward providing some bank-like services inexpensively should appeal to poorer consumers who are largely ignored by large financial institutions. And startups like New York’s Banking Up are searching for ways to bring financial products to the unbanked.

That’s not to say there’s no role for government. But forbidding merchants to reduce their costs by standardizing payment methods doesn’t seem the wisest course. Instead, the focus should be on bringing cards and mobile payment apps to the unbanked. Already many forms of public assistance come preloaded onto a debit card. Government should provide incentives for others who sell to the poor to do the same.

Nor is this to say that cash is over. Some consumers still like paying cash, not because they must but for Jason Bourne’s reasons: They don’t want to spend every waking instant contributing to their digital footprint. Small surprise, then, that a 2015 report from the Federal Reserve Bank of San Francisco found that older and the more affluent consumers are most likely to carry cash with them. The same study found a significant overlap between those who carry cash and those who prefer to pay with plastic.

In the U.S., cash payments run pretty consistently around 15 percent of GDP, not an unusual figure for the developed world. In many corners of the globe, however, the story is different. For example, South Africa’s cash share of GDP is nearly 60 percent, and is hardly expected to budge over the next few years.

But no matter how long cash lasts, the government is poorly placed to decide which merchants can’t choose to go without it. So let’s search for other ways to help the unbanked, while letting retailers decide for themselves how they want to be paid.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Stephen L. Carter is a Bloomberg Opinion columnist. He is a professor of law at Yale University and was a clerk to U.S. Supreme Court Justice Thurgood Marshall. His novels include “The Emperor of Ocean Park,” and his latest nonfiction book is “Invisible: The Forgotten Story of the Black Woman Lawyer Who Took Down America's Most Powerful Mobster.”

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