Visa (NYSE:V) announced a new initiative to encourage certain businesses to go cashless. The card network will award $10,000 to 50 eligible US-based small business food service owners who are willing to go completely cashless, and only accept credit, debit, and mobile wallet payments. The cash prize is intended to help business owners cover the cost of new equipment and POS terminals. Visa hasn't officially commented as to what the cutoff will be to be considered a small business, but the contest is available to restaurant, café and food truck owners only.
To promote their cashless challenge, Visa has released promotional material detailing the benefits of moving to a card-only business. The owners of Split, a popula San Francisco Sandwich shop, claims that the move to cashless reduced average total lunchtime to about 22 minutes, down from 27. David Silverglide, one of the owners of Split Bread, comments that the "faster turn time means more tables, more sandwiches and more revenue." Silverglide also claims the move to a cashless business cut down on closing time, since employees were no longer required to count cash at the end of the day.
Currently, only a handful of stores has gone completely cashless. Amazon Go, Kit and Ace and SweetGreen are among the biggest brands to reject cash. The move to cashless can be legally achieved in most states. Massachusetts is the only state that makes it illegal for a store to not accept cash payments.
Visa claims small business owners could generate much more revenue by moving to a cashless system. According to a Visa study, business owners in New York City could generate approximately $6.8B in additional revenue and over 186 million hours in labor by switching to a card-only model. Visa says this would mean more than $5 billion in annual cost savings for NYC businesses. The full analysis and methodology behind the company's estimates will be released later this year in their “Cashless Cities: Realizing the Benefits of Digital Payments” report.
While going cashless may reduce time at the register and closing, there are added costs to merchants that would need to be factored in. Credit card processors charge roughly 2.2% + $0.22 per credit card transaction. For a business making just $5,000 in monthly sales, that could mean a bill of $1,700 per year — money that could be saved if cash were used for the transactions instead.
Visa's contest has drawn some criticism. Shortly after this announcement was released, certain groups — including the ATM Industry Association (ATMIA) — denounced the contest saying Visa has "elevated its commercial interests above the public interest." As one of the world's largest credit card networks, a chief driver for Visa's revenue is made up of fees paid by merchants who accept Visa-branded credit and debit cards. In 2016 alone, the company made roughly $6.3B for facilitating processing services. This represented 34% of their total gross revenue for the year. ATMIA's criticism stems from the fact that Visa makes no revenue on cash transactions.
Another major criticism of card-only stores that Visa is advocating is how they may disenfranchise low-income and underbanked individuals, who don't have access to cards. A 2014 study by the Federal Reserve Bank of San Francisco found that those making less than $25,000 annually use cash for a much wider variety of transactions than do those with higher household incomes. According to the Fed, " This likely is due, at least in part, to a lack of access to banking and financial products." The FDIC claims roughly 10 million U.S. households have no banking accounts. Overall, a 2013 Survey of Consumer Payment Choice by the Boston Federal Reserve Bank revealed that 26.3% of payments were covered by cash, among all income groups — this made it the second most popular payment type, behind debit cards.