The coronavirus pandemic has led to a major shift in how people pay for things, with many opting to use cards and other contactless payment options instead of cash as a way to reduce contact with others. Some businesses are even requiring contactless payments and have banned the use of dollar bills and coins for hygienic reasons. According to a recent survey by Travis Credit Union, 58% of respondents plan to stop using cash completely after the pandemic is over.
Last updated: Oct. 16, 2020
1. It Takes a Chunk Out of Small Businesses' Profits
When you pay with a credit card or a digital platform, it costs retailers money in the form of third-party fees. At a time when many small businesses are struggling to stay afloat, these fees can really add up.
2. Not Everyone Has Access to Electronic Payments
Vulnerable populations — including low-income earners, retirees, some immigrants and people with disabilities — “have little or no access to electronic payments and are increasingly shut out as banks cut back on ATMs and customer service,” The New York Times reported. This could make economic inequality issues even worse.
3. You Lose Privacy When You Pay Digitally or With a Card
Swiping your credit card makes payment information accessible to all the businesses that you transact with.
4. This Makes You More Vulnerable to Data Breaches
When your personal data is exposed, it can make you vulnerable to data breaches. If your credit card information is stolen, it could be used to make fraudulent purchases. And if more personal information is retrieved, it could lead to identity theft.
5. It Makes You Reliant on Technology for Every Transaction
Cash is a foolproof way to pay for something — but cashless options aren’t always so reliable. Your credit card could be declined, or your phone could run out of battery, blocking you from paying using an app. Cashless transactions rely on technology, which sometimes fails.
6. It Could Be Harder To Control Your Spending
Some financial professionals recommend paying in cash as a way to be more mindful of your spending and also to ensure that you don’t spend more money than you actually have. Swiping a credit card or using a cash app is often so mindless that you don’t really think about the money you’re spending, which can lead to spending more money than you can actually afford.
7. You Could Be Charged Fees on Transactions
It’s not just the businesses you shop at that pay fees for cashless interactions — you may end up having to pay fees to live in a cashless society, too. Peer-to-peer payment services like Venmo charge fees for certain transactions, for example. Credit cards also charge a number of fees, including annual fees, late fees and foreign transaction fees.
8. It Could Lead To Banks Charging Higher Fees as Well
If people start relying on credit cards and apps to make payments, it could lead to negative interest rates, which reduces bank profits. Banks might react by increasing their fees, which could end up costing consumers.
9. You Lose Your Freedom To Choose How You Pay
There might be certain things you prefer to pay for in cash. If things move to a truly cashless society, you will lose this freedom to choose to use cash to pay.
10. It Removes the Emotional Value of Money
It’s likely that you had a piggy bank at some point in your life, and that you got joy from placing coins into that slot. It could be argued that when money is no longer tangible, it loses its emotional value.
How To Avoid the Downsides of a Cashless Society
A cashless society might not be an economic utopia, as it certainly has its downsides. While some of these downsides are unavoidable, there are steps you can take to mitigate some of the drawbacks.
Take Extra Steps To Protect Your Identity
One of the biggest criticisms of a cashless society is that it makes you more vulnerable to fraud and identity theft. While there is no surefire way to prevent your personal information from being exploited, there are steps you can take to mitigate the risk. According to the Federal Trade Commission, there are four main ways to keep your personal information secure: “know who you share information with; store and dispose of your personal information securely, especially your Social Security number; ask questions before deciding to share your personal information; and maintain appropriate security on your computers and other electronic devices.”
Use a Digital Budgeting App
One criticism of a cashless society is that it makes it easier to spend more and lose control of your spending. As a counterpoint, it’s easier to keep track of every dollar you spend when you link your accounts to a budgeting app. Apps like Mint allow you to sync your bank accounts and credit card accounts so that you can easily see every transaction you make. You can also set budgets and check in regularly to see your progress. When you pay with cash, every transaction has to be manually recorded.
Read the Fine Print
Most transaction fees can be avoided. For example, Venmo doesn’t charge fees if you send money through your bank account or debit card, but it does charge a fee if you send money with a credit card. Avoid fees by linking your account to your bank account or debit card.
Credit card fees can also usually be avoided. Opt for a card with no annual fee, pay bills on time and use a card that does not charge foreign transaction fees when traveling abroad.
Choose a Bank With Low or No Fees
If your bank starts to raise fees as a result of negative interest rates, you always have the power to switch banks. You should always opt for free bank accounts whenever possible.
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This article originally appeared on GOBankingRates.com: As We Move Toward a Cashless Society, These Are the Risks You Need To Know About