Restaurants Weigh the Cost of Bans on Cash-Free Businesses

New York City Council voted to require businesses to accept cash, but the conversion could come with additional operating expenses.

A customer pays with cash at a restaurant
Photo: Sasithorn Phuapankasemsuk/Getty Images

Travas Clifton, owner of ModCup Coffee in Jersey City, NJ, was driving between his three cafes picking up cash when his young daughter piped up from the backseat, asking why they couldn’t go to the park. When he explained what he was doing, his daughter asked, “Doesn’t everyone use a credit card?” In fact, said Clifton, most of his customers did—nearly 85 percent of the time. So he changed his business model, ditching cash at all locations. Then, in March of 2019, New Jersey banned cashless businesses, requiring Clifton and others to abandon the cash-free model and once again accept cash.

Last week, New York City passed similar legislation, requiring restaurants and retail businesses to accept cash. In addition, no business can refuse cash payment, nor can a business charge a higher price for customers who pay by cash. It goes into effect toward the end of the year.

The legislation was sponsored by New York City Councilmember Ritchie Torres, who told reporters last Thursday, “Cash is a universal currency and therefore ought to command universal acceptance.” Citing a study by the Urban Institute, he said 360,000 New York households representing 11.7 percent of the city’s population have no bank account—higher than the national average of 7.7 percent. Similar regulations have been put in place in Massachusetts, New Jersey, Philadelphia, and San Francisco.

Perhaps counterintuitively, adopting cash as a new form of payment can cost a business. While the business doesn’t pay credit card transaction fees on cash payments, it pays in other ways.

Laura Leister is co-owner and co-founder of Pieces in St. Louis, a full-service restaurant and bar that opened in 2016. Initially, the business operated on a cashless model, a decision Leister described as “knee-jerk,” based on her own experience of rarely carrying cash. Almost immediately, she said, customers of all ages pushed back on the policy. When a customer suggested Leister look into the socio-economic repercussions of going cash-free, she realized came to the same conclusion as the New York bill’s supporters: running a cashless business could marginalize certain categories of people. (For its part, a member of the St. Louis city council has also proposed a ban on cashless stores.)

Leister made the switch to accepting cash a few months after opening Pieces. Immediately, she purchased an expensive safe that had to be bolted to the floor. She installed additional security cameras and window sensors to deter break-ins and theft. She implemented new policies including a cash-counting system and daytime bank drops to keep her staff safe and associated additional labor costs. And she had to pay for increased background checks on all prospective employees.

Irene Cook, the former chief operating officer of Dig Inn (renamed Dig), led its transition to cash-free in New York before departing the company in 2018. She helped convert existing locations to cashless while newer locations launched as cash-free. New locations came with immediate cost reductions, she said, due to space savings—no need for a safe or cash drawer—and labor savings—Dig’s website explains employees spent two hours per day per location dealing with cash.

“It was a meaningful difference. We could reallocate that labor elsewhere toward meaningful guest experience, training, anything else other than counting cash,” she said. That the company didn’t adjust its hiring practices or add additional background checks, but was happy to end the practice of making employees sign a cash-handling policy, Cook added. “There were no more conversations about anyone’s integrity or the process or the policies.”

Dig also operates restaurants in Boston, and all accept cash—a requirement under longstanding Massachusetts law. When New York-based employees traveled to Boston for openings, Cook said, they had to be re-trained to accept cash. “They were like, oh my gosh, this is archaic,” she said.

Dig representatives did not immediately return a request for comment on their future plans, but the company will need to retrofit its stores to once again accept cash payments in light of the New York legislation.

For entrepreneurs, it’s remarkably easy to set up a business using a credit card processor, in part thanks to companies like Square, which provides hardware and credit card processing software to businesses. But the software allows for cash payments, too. According to the company, 90 percent of vendors on the platform accept both cash and cards as payment. In the wake of the proposed legislation last year, the company sent a survey to its New York City sellers. Just seven percent of New York sellers identified as cashless. And 72 percent of business owners surveyed said they supported the legislation to require businesses to accept cash.

And consumers have become conditioned to using credit cards and other cashless methods of payment for even small transactions. Square transaction data reveals that half of consumers used their card for a $8 transaction in 2015. Four years later the transaction size dropped significantly, with half of consumers using their card for a $4.50 purchase in 2019. The most dramatic shift to card usage, according to the company, is in customers using cards to pay for transactions between $10 and $20.

In many cases, the decision to go cash-free draws largely from personal experience. Union Square Hospitality Group CEO Danny Meyer has spoken at length about his company’s decision to operate several cashless restaurants in New York City. A representative for the company declined to comment on the newly passed legislation, but in a 2019 Fortune interview, Meyer said, “I do think that the world is moving to using less cash. I don’t go to the ATM nearly as much as I used to.”

But operators cite a number of reasons beyond personal experience and customer preference that make a cashless model attractive: namely, safety, cleanliness, and speed. Keeping cash in a place of business opens it up to theft; employees carrying cash to bank drops can put them at risk, too. Paper currency is dirty, and having employees handle both cash and food can lead to trouble. And the relative ease of digital and credit card payments means it’s fast—no counting cash at the register.

Still, Leister said she doesn’t regret the decision to accept cash at Pieces. Customers pay with cash about 30 percent of the time, she said. “It is so important to make sure you can provide your service to anyone who walks in the door. Coming from a customer-service standpoint, you want to reduce the times you say no to a customer. They’ll always remember the ‘no’ or the inconvenience.”

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