Ready or not, it looks like the U.S. is moving toward a "cashless society" in which the vast majority of all consumer payments is conducted via credit or debit cards. A recent study by MasterCard Advisors entitled "Cashless Journey" attributes more than 80% of consumer purchases in the U.S. to credit or debit card transactions. That 80% may seem close to cashless, even discounting online purchases that are cashless by necessity, but not compared to countries such as Belgium (93%) or France (92%).
Indeed, the U.S., at least according to the credit card giant, is on the tipping point. Along with countries such as Germany, South Korea, Singapore and Japan, the U.S. continues to lag behind most European countries. Granted, MasterCard has a very large dog in the battle between cash and cashless, but figures from the U.S. Federal Reserve issued last year correlate closely with MasterCard's conclusions. The study, titled The 2013 Federal Reserve Payments Study Recent and Long-Term Payment Trends in the United States: 2003-2012, shows a steady increase in cashless payments over the previous decade.
According to the Fed study, the estimated number of noncash payments, excluding wire transfers, was some 122.8 billion in 2012, with a value of $79 trillion. Additionally, the report stated that the number of noncash payments in the United States increased at an annual rate of 4.4% from 2009 -- the year examined in the previous study.
Interestingly, the report noted that the number of debit card payments exceeds the number made by credit cards. This trend, first noted in 2004, has continued through 2012. And the number is significant. As the Fed indicated, debit card payments total some 47 billion transactions, compared with approximately 25.2 billion credit card payments. This would seem to indicate that those consumers with cash readily at hand via ATMs still prefer going cashless.
"I think that as far as moving to a cashless society, just looking at trends and data, that's an irrefutable statement," said Patrick Frickleton of Core Cashless Inc., which develops payment systems for family entertainment centers. "There are two types of people: those who are totally for it and nothing is going to stop it, while the other half says, 'That might be true, but there's a lot we have to work out. I still prefer cash.' Regardless to what opinion we have, we have to prepare for less physical money.
The cashless trend's wild card is so-called mobile payments -- those payments conducted via smartphone. Mobile wallets are still in the "rollout" stage, with less than 20% of consumers using them to make purchases, but they seem to be gaining momentum fast.
A recent study by Forrester Research predicted that mobile payments would continue to grow at an annual rate of 43% through 2018. Starbucks, which prides itself on taking a place at the cutting edge, introduced a mobile payment option in 2011. It then combined the payment option with a customer loyalty program in an app that has gained some 10 million users drawn by its convenience. The purveyor of pricey coffee later added payments via Square Wallet. To date, the company estimates mobile payments account for more than 10% of its weekly in-store transactions.
The trend toward cashless has been gaining momentum in independent locations as well. In the vibrant New York City bar and tavern community, noncash payments can top 90%. "The truth is, we'd rather not have cash customers," said one bar manager of a busy venue catering to upscale twenty-something clientele. "It slows down the bartenders and wait staff. You have to count it, take it to the bank. Cash is a time-suck and it attracts sticky fingers."
However, even New York City is still not cashless. As the bar manager noted, there is a down market segment of so-called "dive bars" that remain cash only or cash preferred scattered throughout the city. Not surprisingly, these venues are some of the most profitable for coin-op, often featuring a pool table, juke and other equipment. However, these venues have largely been relegated to a niche classification. And, by some accounts, are shrinking in numbers as the city's demographics shift.
For the street operator, the eventual and seemingly inevitable move to cashless is both disruptive and transformative. The use of mobile payment apps, such as the one offered by Starbucks, could prove a way to reach out to league members as well as casual players and patrons. On the downside, building out an infrastructure that either links to a location's existing POS system or runs independently will prove a costly proposition.
Whether consumers will use plastic or a smartphone to pay for coin-op still remains to be seen. However, as Frickleton pointed out, consumers can adapt quickly. "As recently as 2000, buying things online was a scary proposition," he said. "It took five, six, seven years to get where we buy a majority of things online. Convenience and user experience trumps security concerns and cost."
Could cashless coin-op boost profits? Perhaps. Anecdotal evidence indicates that tips at bars and taverns increase when consumers pay with plastic. This phenomenon was backed up by a 2009 study of Big Apple cab drivers, which found tips increased to 22% from 10% when they started taking plastic.
This is also consistent with the landmark paper that appeared in the Journal of Experimental Psychology in 2008 aptly titled Monopoly Money: The Effect of Payment Coupling and Form on Spending Behavior.
In that study, the scientists noted, "If the pain of paying increases with the transparency of payment mode, cash payments are more likely to be used for justifiable necessities and less likely to be used for frivolous luxuries which may accentuate the pain of paying. In contrast, using a less transparent form of payment such as a credit card or a gift card lowers the vividness with which one feels that one is parting with real money, thereby encouraging spending, particularly for hedonically pleasurable luxuries."