NYC bans cashless businesses

Last month, New York lawmakers passed a bill prohibiting stores, restaurants, and retail establishments from refusing cash payments.

There are many reasons private businesses are trying to eradicate cash, distaste for credit card fees aside. It’s faster and more convenient, because nobody’s counting change. If you’re processing credit cards, you don’t have to worry about employees stealing money. You don’t have to worry about loss in case of a fire. You don’t have to deal with collecting and remitting the cash. So everything just goes on the back-end.

But while there are good reasons to go cashless, the argument is that this ends up being a regressive tax on the poor: that is, while this is not a government tax, it’s a tax that disproportionately punishes a lower socioeconomic class.

So if you’re wealthy, it’s much more convenient to put stuff on your credit card and not carry around cash. However, if you’re poor and can’t get a bank account, you basically have to pay for the privilege of having access to a card. For those unable to get a bank account, there is a world of prepaid cards that you might see in grocery and convenience stores. Normally, you’ll pay a small surcharge, say $2 to $5, on top of the balance you add to the card. So if you buy a $100 card, it might cost $102. Then, unless you maintain some minimum balance, you have to pay monthly fees that might be a sizable chunk of your stored balance; the market leader, Greendot, charges $7.95/month for balances under $1,000, so with a $100 balance, that would deplete to almost zero in a year. Then, if you want to withdraw cash, you have to pay an ATM fee to the prepaid card provider, on top of whatever the ATM is charging you. Here’s an example of what these fees look like to a low income consumer.

Until cheaper alternatives emerge—which is not simply the fault of “greedy” prepaid companies, but rather a whole host of infrastructure and distributions costs that they themselves have to bear—you have to be somewhat wealthy to not be burdened with banking fees. From a consumer’s perspective, you don’t have to pay for the privilege of having cash, but you do for cards.

That said, there’s no question that the world will go cashless eventually. Accepting money electronically is better and much more efficient for the economy at large. But, at present, the fees are too high for both merchants and consumers. The NYC cashless ban is not as Luddite a policy as you might think. It’s intended to be a progressive policy for people who might otherwise be closed out of establishments because of the high cost of accessing a card.

Alex Rampell, a16z fintech general partner