In its ongoing war against cash, Visa recently announced an initiative to pay restaurants and food vendors $10,000 if they pledge to start what Visa calls a “journey to cashless.” The money will go toward the cost of the necessary contactless technology, as well as the marketing required to promote the change. Visa will choose the participating merchants (online stores are not eligible to apply) through an application process that began in August 2017. Customers will be able to pay using credit or debit cards or with their smartphones.

Why now?

Visa considers cash to be one of its major competitors and has long been focused on trying to convert customers away from cash. According to The Nilson Report, Visa accounted for 59% of purchase amounts charged on general purpose cards in 2016, more than twice as much as the 25% accounted for by MasterCard. However, cash is still king for many people around the world as data from Visa shows that check and cash transactions increased approximately 2% worldwide from 2015 to 2016, reaching $17 trillion.

In the US, cash is still the preferred payment method. A November 2016 report from the Federal Reserve Bank of San Francisco shows that cash accounted for 32% of all transactions in the US in 2015, compared to 27% for debit cards and 21% for credit cards. However, that cash transaction percentage is down from 40% in 2012, indicating that the use of cash is, indeed, in decline.

Will it work?

While some merchants already decline cash as a form of payment, many others are likely to balk. For one thing, customers are used to being able to pay in whatever form they choose, and eliminating one of those forms may well turn them away from a merchant who doesn’t allow it. Merchants also have to pay credit card interchange fees on credit card charges, which cut into their revenues and may perhaps make them less eager to accept the challenge.

37% of US consumers believe they use unsecured debt responsibly.

From the consumer side, only 37% of consumers believe they use unsecured debt responsibly, according to Mintel’s US report on unsecured loans. While they are not necessarily referring only to credit card debt, it is not clear that they will readily increase the amount of charges they put on their cards because they have no other option. In addition, since only 17% of consumers have higher balances this year than they did last year, most are handling their credit at least somewhat responsibly, again making it questionable as to whether they would welcome the requirement that they add more to their balances than they might like.

What we think

While the use of cash is certainly declining, it will be difficult to eliminate using cash altogether. Consumers may choose not to frequent merchants that limit their payment method choices, reducing the likelihood of merchants accepting Visa’s offer. In addition, unless Visa and other card companies want to lower or even eliminate interchange fees, businesses – especially small businesses – will likely choose to continue to offer customers the choice of paying with cash.

Robyn Kaiserman is a Senior Analyst, Financial Services at Mintel, researching and writing in-depth reports on the financial services industry. Her most recent topics include Innovations in Banking and Payments.

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