The War on Cash: More Businesses Go Cashless, but Is it Legal?

On U.S. currency, there is a phrase that says, "This note is legal tender for all debts public and private." This begs an important question in the war on cash: With more businesses going cashless, is it even legal for a U.S. business to refuse to accept legal U.S. currency as a method of payment?

In this Industry Focus: Financials clip, host Jason Moser and Fool.com contributor Matt Frankel, CFP, discuss yet another effort to encourage cashless payments and the legalities of cash-free businesses.

A full transcript follows the video.

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This video was recorded on Feb. 4, 2019.

Jason Moser: I wanted to talk a little bit -- we just had the Super Bowl yesterday, and we've seen some other articles here recently that are talking more and more about how sports franchises, stadiums, arenas, they're all leading this push for cashless concessions. We were reading an article that specifically was talking about Super Bowl 53, also talking about the Tampa Bay Rays actually leading that push. This is something we talk about a lot on the show, of course, because it's a real market opportunity. It's something we've had a lot of success with, with the "war on cash" basket. It was an interesting article to read. From my perspective, anytime I go to one of those events, it seems to me like cash is a hindrance, it's a problem. You go and you're like, "Oh, man, I have to stop by the cash machine and get cash. It'd be much easier if I could pay with my phone or if they had contactless payments." It sounds like that's what these sporting events are trying to do.

Matt Frankel: Yeah. Visa is a big sponsor of the Super Bowl, which probably has something to do with it. It's not just on the consumer point of view. For the business, it's a benefit, as well. Not having cash greatly reduces your chances of getting robbed or employee theft. You don't have to go to the bank anymore. You don't have to make certain capital investments like having cash registers or a big safe in the back or things like that, for example. There's benefits on both sides to not using cash. As technology evolves, it's getting easier and easier to use contactless payments and things like that. It's getting easier for the consumer to use, which has been, in my opinion, the big hindrance up to this point. I don't foresee that trend reversing anytime soon.

Moser: No, I don't either. I put out a poll on Twitter a few days ago. I was reading another article that had done a survey in regard to mobile wallet vs. contactless payments. It got me thinking, I wonder if there was a strong preference out there for one over the other, so I asked on Twitter if you had your choice, invisible world where you have to make a payment, like at a grocery store or gas station or whatever, would you prefer to use your mobile wallet -- Apple Pay or Google Pay -- or, would you prefer to use a contactless payment form like waving a card, kind of like how we get into the Metro here in D.C. I wasn't sure myself, initially, if I had a preference.

It turned out that about 60% of the people prefer using a mobile wallet, a digital wallet, vs. contactless. The more I thought about it, if I had my druthers, I would probably go with the contactless payment. A little card is so easy to pull out and wave. The less I have to worry about dealing with my phone, probably better. But, it's either way. They're both convenient and I like both options. Where do you stand on the contactless vs. the mobile wallet?

Frankel: I like the contactless. I'm actually probably the least tech-savvy person that covers fintech. [laughs] I just got a Venmo account about two weeks ago.

Moser: Nice!

Frankel: I've used Zelle and I've used cash. I can go either way. Right now, I'm still one of the people who uses cash for small transactions. I'm in the majority of that, to be clear. Cash still dominates small transactions. For example, I could never see a convenience store going completely cashless. They would lose too many customers because that's what they use. But the latest statistic is, about 48% of all transactions are now either credit or debit card-based. That includes things like mobile wallet and contactless payments. I'm one of the later adopters, but I definitely go contactless, especially with how easy it is, especially through some of the newer mobile phones. I just got the Galaxy Note 9, and the Samsung Pay is really easy to use where you can. It's becoming so much more user-friendly than it was a just few years ago.

Moser: Yeah. I imagine that'll probably continue to be the case. We've talked about the legalities here with places not accepting cash. I think you're right, most places would be smart to always accept cash. Ultimately, you want to give your consumers choice. The place that gives their consumers the most choices is going to probably generate more business over the course of time. You did some research into the legality questions here. If an entity decides to go completely cash-free, and how that could play out on the legal side of things. What'd you come up with?

Frankel: Yeah, especially in bigger cities, it's becoming a real trend. Restaurants, things like that are going completely cashless. Starbucks is even testing out some cashless locations in certain areas. I know they have one in Seattle that's completely cashless right now. This begs the question, is that legal? If you look at the money in your wallet, it says right there, this is legal tender for all debts, public and private.

I did a little bit of digging into that. Long story short, the Treasury and the Federal Reserve both say that it's completely optional for a business to accept cash. There's two main reasons why. First, the wording on the bill itself says that in order for cash to be mandatory to be accepted, it has to be a debt. If it's not the purpose of repaying a debt, then the businesses don't need to accept it. They gave a good example involving gas stations. A lot of gas stations won't accept $50 or $100 bills at night. If you go to a clerk with a $50 bill and say, "I want to fill up my tank," they have the right to say no. If they let you pump and then go to pay, then it becomes a debt and they legally do have to take the money. That's an interesting gray area. So, if they let you get the merchandise first, then it becomes, you're indebted to them, and they do have to take it.

Reason No. 2 is that although everything that's written on our money is implicitly backed by our law, there's no actual federal law in the book that says cash is legal tender. You would think there is, but there's no law. This comes straight from the U.S. Treasury. There is no law on the federal level that says that businesses have to accept cash. It's completely optional. Now, there are some local laws. Massachusetts, for example, has a lesser-known state law that says that businesses have to accept cash. So, you're not going to see a cashless Starbucks in Massachusetts anytime soon. There's a big push on some local levels, in New York, for example, there's some politicians who say that cashless businesses unfairly discriminate against lower-income individuals. Makes sense. A lot of people in the lower income brackets don't have bank accounts, don't have debit cards, things like that. The argument is that you want a fully inclusive marketplace. That's definitely a problem that would have to be worked out before cashless businesses become really widespread.

But, yeah, it's completely legal for businesses to refuse cash, which I was surprised to find out. It makes sense when you think about those two reasons.

Moser: Yeah, those are good examples. Matt, I think you may need to go in there and update your LinkedIn profile there to reflect your legal expertise. Good research there, man! I appreciate that. I'm sure our listeners do, too.