The Many Ways Cash Promotes Equality
Apr 26, 2024
Cashless payments are a huge revenue stream for the financial sector, bringing advantages but also risk for consumers, as discussed in a recent article published by the London School of Economics and Political Science. Retaining cash alongside them introduces a balancing influence to keep payments competitive and inclusive.
Dr. Barbara Brandl, Associate Professor of Sociology, opens with the observation that, traditionally, the highest value financial sector was banking, with payments among the lowest value. This all changed in 2020 amid a meteoric rise of cashless payments, with Visa overtaking JPMorgan Chase and all the top European banks in value. While privacy and security have been a major focus of concern in this shift towards digital over physical money, Brandl says ‘the rise of cashless payments has many other dramatic effects on modern societies.’
The digitalisation of payments has enormous potential to increase social inequality further… Cash payments are supported by a public infrastructure… Cashless payments, in contrast, depend on networks of private payment providers, such as banks or credit card companies. Thus, the switch to digital payments implies a replacement of a public infrastructure with a private one... While no one can be excluded from using cash, private payment providers can impede individual’s access to cashless transactions or charge them high costs for their services.
In addition to the risks of direct exclusion and added fees, Brandl argues the emergence of cashless payments has ‘blurred the lines between payments and consumer credit’ and aggravated existing inequalities experienced by those on low incomes.
In contrast to cash payments, where payment and credit are strictly separated, cashless payments—such as credit cards—can always be interwoven with consumer credit, accentuating and perpetuating social inequality… Consumer credit is mainly used by those on low incomes, who only have access to cashless payments and consumer credits under poor conditions… [worsening] the borrower’s already precarious situation.
Brandl adds that the data created by cashless payments opens another income stream for private payment providers, and this data ‘is not only chased by advertising companies but also companies in the financial sector seeking to create financial products tailored to users’ creditworthiness.’ This also exacerbates inequality as ‘less worthy’ individuals are offered worse, higher cost credit deals.
In the United States, large segments of the population are excluded from the banking system due to the digitalisation of payments and the associated dominance of single credit card companies.
Brandl sees legislation as the chief solution to curbing the influence of and damage wrought by cashless payment companies, suggesting ‘stronger engagement in providing public payment infrastructure’ and ‘greater protection for consumers by government.’ Additionally, by supporting cash—with good funding and organisation of infrastructure, and legislation to oblige companies to accept cash payments—governments can ensure cashless payments have competition from a truly inclusive payment instrument. This will also empower individuals to choose how they pay, based on their financial circumstances and tolerance of the privacy and security risks and fees associated with cashless options.