Fast cash, dirty money and the barriers that keep people out

I spent a couple of days in Calumet, Michigan, once the center of the Upper Peninsula’s copper mining industry. By the time I found Calumet, the mines were gone and the town was crusted over, except for some shops selling artisan wares forged from copper — beautiful things you couldn’t help but touch and covet. These are the sorts of artistic endeavors I like to support; but they didn’t make it easy. Not one of the shops accepted credit cards. They would have taken my out-of-town check had I thought to bring one, but no; in Calumet cash was king. This was a mere 10 years ago.

In the COVID-19 era, the merchants I frequent or the coffee shops that dot my commute have gone all-in on cards and touchless payments. Cash is increasingly being rejected by stores for its “filth.” The other day, I placed a $20 bill on a counter to buy a $5 coffee. When the cashier saw the bill, he audibly sighed, slipped on a nitrile glove and picked the thing up like it was a dead mouse. 

It’s easy to see the appeal of electronic transactions, but I worry about how the shift away from cash affects the unbanked and underbanked, people for whom cost keeps them out of the banking system. 

“When you can eliminate minimums and drive fees down, that’s all good,” said Eric Solis, founder of the payments app MovoCash, a digital cash network built on fiat currency that has a traditional bank standing behind it. The benefits of a “digital bank” come from diminished barriers to entry, Solis explained. He described his business as an enabling technology instead of a disruptive one, and MovoCash (which I have not used) purports to be a complete digital bank for the unbanked and underbanked. 

The shift away from cash, and the economic slump that has disproportionately impacted those who stand on the lowest rungs of the economic ladder, will likely reverse what has been a downward trend in the number of unbanked households in the United States, which in 2019 was 7.1 million, according to the FDIC. Within those 7.1 million unbanked, 14 percent are Black households, 12 percent are Hispanic households, and less than 3 percent are white households. The top two issues cited for not having a bank account were cost and trust. 

The hastening demise of cash also opens the door to increased fraud. Brick and mortar retailers are consistently being hacked. And, keeping a card on file with an online retailer has risks too. The problem of merchant fraud is equal to consumer fraud, Solis said. Ironically, MovoCash itself suffered a security breach recently. And it’s the imperative to provide iron-clad security that drives costs up. Solis called it a circular effect. “We come up with amazing innovation and then the fraudsters come along. Regulators say we need more rules and regs, and BAM, the fees go up,” he said. You could say it’s the regulators who become the barrier to financial inclusiveness. Without regulations, however, you get chaos. But as the industry innovates, it must ensure it doesn’t price those basic services in a way that excludes millions.