Why businesses should be forced to accept cash

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I have a $20 bill in my wallet and I feel like it belongs in a museum.

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Cash has all but disappeared from being used in everyday, over-the-counter transactions, and much of that is thanks to the pandemic. COVID-19 created a perfect storm for the demise of cash, mixing uncertainty about the vector of the virus’s transmission — did it stick to money? — with people simply wanting to avoid unnecessary physical contact with strangers. In the fallout, many outlets switched to a debit- or credit-only model that largely lingers today. (I note this choice seems to conveniently discount the germs that can accrue on a PIN pad.)

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The Bank of Canada has clarified that it is not mandatory for Canadian businesses to accept cash. But maybe it should be. The general elimination of cash as a payment option creates new problems for small businesses and consumers alike.

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So far, we have left it up to businesses to decide what modes of payment they will accept. Small businesses must negotiate across various payment processors such as Moneris, Block Inc.’s Square, Stripe Inc., and generally grapple with the market power of credit card companies Visa Inc. and Mastercard Inc., which are now downloading their service (“swipe”) fees to shoppers and becoming more expensive to use. Cashless systems make it easier to keep track of accounts in a digital-first environment, but maintaining the ability to transact with cash is a good backup option for merchants still vulnerable to Black Swan events, like this summer’s Rogers Communications Inc. outage that cost small businesses thousands of dollars.

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Allowing businesses to ban the use of cash also has negative consequences for some shoppers, who may prefer to use paper money for budgeting purposes, as many seniors do, or who don’t have a connection to a bank. ACORN Canada estimates that around three per cent of Canadians — close to one million people — are unbanked. There’s also a subset of shoppers who simply prefer to be as free as possible from the mundane surveillance of payment providers, as credit card companies track shoppers like never before.

Locking out cash options fundamentally benefits credit card companies, which charge retailers hefty fees every time a customer uses a card. And though a 2017 survey from the Bank of Canada indicated that Canadians were shifting away from cash, it also said cash was used about one-third of the time.

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In the United States, there have been some municipal and state-led legislative interventions to protect unbanked customers who rely on paper money, with such bills generally passing in Democratic jurisdictions. In May of this year the U.S. House Committee on Financial Services passed the Payment Choice Act of 2022, a bill designed to protect the right of consumers to pay with cash at brick-and-mortar retailers. The legislation would require retail businesses to accept bills and coins for transactions of less than $2,000 and prohibit them from charging cash-paying customers a higher price than those paying with debt or credit.

Legislation is helpful to protect consumer choice. As it stands, banks may be incentivized to encourage consumers to pay with alternative mediums because they disproportionately bear the costs of transacting in cash, according to a recent Bank of Canada report. Such a scheme ignores consumers at the margins who have good reasons to use cash, and whose interests the incentive structure is therefore neglecting.

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Of course, using cash makes little sense in an e-commerce context, where there are newer options for consumers alongside credit or debit payments, such as buy-now-pay-later plans that empower shoppers to bypass credit cards entirely. But there are still plenty of transactions that happen face-to-face where a paper money option would be welcome by many.

Ultimately, the battle to maintain the option of cash is emblematic of the tension regulators face between favouring businesses’ freedom to accept or reject a payment method and privileging consumers’ right to choose across a suite of legitimate options. Introducing legislation that guarantees people the ability to choose to pay with cash would signal a citizen-centric approach to business regulation. Facilitating a cash-free world is exclusionary and unnecessary.

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Given that consumers are getting their butts kicked by high inflation, it would be a positive step for financial inclusion in the economy if the state signalled it could act as an intermediary between them and businesses. Provinces could give people the right to pay in cash alongside a debit or credit option as part of their consumer protection legislation — a simple way for Conservative premiers to demonstrate their stated commitment to making Canadians more “free.”

Let cash come back as king. It could make life a little more affordable and better protect vulnerable populations. Plus, I’m ready to break that $20.