Cash Is Dying, and the Unbanked Are Being Left Behind
As payments are increasingly going digital, the poor and undocumented need help to make the transition away from paper money
Imagine you didn’t have a bank account for a day. You can’t pay bills or shop for cheap goods online. You can’t even pay a parking ticket without going to a physical location. How would you possibly navigate that day? But for the people who use cash for most or all of their transactions, that’s everyday life.
In the United States, the unbanked and underbanked make up around one-quarter of the population, according to 2017 data from the FDIC. The majority of that group are non-white, minimally educated, and make less than $30,000 per year. Over half the people surveyed for the report said they didn’t have a bank account because they couldn’t afford to open one.
At the same time, government services across the United States are looking to go cashless, with New York, Houston, and D.C. considering cashless options for public transport, something low-income groups depend on daily. Some retail chains are also doing away with cash as a payment option, accepting only debit or tap-to-pay methods.
Most reports on cashless payments acknowledge that the unbanked and elderly will struggle with the transition, but not many of them outline actual solutions to the problem, focusing instead on the detriments of cash and the benefits of digital. For the one-quarter of the U.S. population who may be left behind by this transition, that isn’t good enough.
A report by the Boston Consulting Group identified five main barriers to cashless payment systems: high cost of electronic payments to retailers, lack of solutions for the customer, lack of governmental support, insufficient trust in digital payments, and an absence of support infrastructure. And those reasons make sense. Support for cashless payments is scattered, especially in poorer areas. Mastercard’s “Fareback Fridays,” where they pay the public transport fare for users with contactless Mastercards in New York City, have been met with criticism for only being available on the lines more affluent customers use, not where people could actually benefit from having a credit card company pick up the tab.
Mobile payments also create data points that can be sold to advertisers. Mastercard touts the impressive amount of data it collects on its website with the question, “What can 2.4 billion global cards, over 65 billion transactions a year, and analytical platforms mean to you?” Recent data breaches at major companies — Equifax, Yahoo, Marriott, Amazon — foster little faith in the system.
The anonymity and relative security of cash remain appealing to the unbanked, and fees remain an obstacle.
Houston, a city with one of the country’s highest percentages of unbanked households at 11.8%, is considering a multimillion-dollar initiative to take its Metro bus and rail services cashless. The possible partnership with the company Innovations in Transportation (INIT) would be part of a massive expansion of Metro resources in Houston that includes expanding both rail and bus lines. While the first cashless transport likely wouldn’t roll out until 2022, the need to replace aging fare boxes could push that date closer to the present.
Lukas Thoms is senior product manager at Squarespace, co-founder of the LGBTQ+ tech program Out in Tech, and author of a OneZero essay on the case for cashless stores. He says the solution is to look at obstacles to cashless banking as they apply to certain groups, which could yield better results than attempting a one-size-fits-all solution. “Regulation needs to happen for a number of reasons,” Thoms told One Zero. “The way I see it is we need to do a better job of giving the unbanked access to the markets they need access to.”
So far, one of the most widespread instruments used by the unbanked is reloadable debit cards. According to the FDIC report, 26.7% of unbanked Americans were using some kind of prepaid debit card as of 2017. American Express’ Bluebird, for example, functions like a bank account, allowing ATM withdrawals and direct deposit. AmEx partnered with Walmart’s MoneyCenter money management platform so users can withdraw money from their “Moneypass” ATMs for no charge. Walmart has another three different types of reloadable debit cards available in-store besides Bluebird: Visa’s Netspend card, its own Moneycard product offered via Mastercard, and a variety of “rapid reload” reloadable debit cards.
But Bluebird, Netspend, and Moneycard all require a social security number, and most have fees for transferring or adding money to the cards. Thoms says that feeless subsidized cards similar to these and given free of charge to people who need them would do a lot to bring the unbanked on board with the cashless economy, as they could be reloaded and used just like a debit card, but without an onerous surcharge on the consumer. The requirement for identity when using cashless payments, Thoms concedes, is “one of the hardest pieces” of the puzzle to solve. Providing reloadable payment cards that require minimal personal information to use could convert people who don’t have an SSN or are undocumented.
Though solutions are emerging, there’s no silver bullet. The anonymity and relative security of cash remain appealing to the unbanked, and the fees involved with using cards or apps remain an obstacle. We’re unlikely to see the end of cash in our lifetimes, but there are ways we can move closer to including everyone in an increasingly digital economy.
Products like Houston Metro’s cashless Q card are already popular with riders. The tap-to-pay card operates like a debit card for transport. Houston Metro staff and/or retailers who’ve partnered with Metro sell or reload the cards, and retailers get a commission as an incentive to sell. The transit authority provides incentives to passengers as well, like free additional rides within three hours of your first ride, something one rider said made it cheaper for him than cash. “I’ve been using these for as long as I’ve been riding buses,” he told OneZero as he waited for the rail on downtown Houston’s Main Street. “As long as they been had ’em.”