How a Cashless Society Could Harm the Unbanked and Underbanked

Have you ever imagined a world where cash is obsolete, and every transaction is digital? I’ve thought about how convenient it might be, but then I realized not everyone has a bank account or easy access to digital payments. For the unbanked or underbanked, a cashless society could create significant challenges. In this blog, I’ll explain how a cashless society might negatively impact someone who is unbanked or underbanked, highlighting the barriers they face.

A cashless society relies on digital transactions, which can exclude those without bank accounts or limited banking access. This matters because millions—about 5% of U.S. households are unbanked and 13% underbanked, per 2021 FDIC data—depend on cash for daily needs. I’ve seen people struggle to pay for essentials without digital options, and a cashless shift could worsen this. Let’s explore the impacts.

Why should you care? Because a cashless society could marginalize vulnerable people, affecting their ability to thrive. This article will define key terms, outline negative impacts, and discuss broader implications. Ready to see how going cashless could hurt some? Let’s dive in.

What Does Unbanked and Underbanked Mean?

• Unbanked: Individuals or households with no checking or savings account at a bank or credit union. They rely on cash or alternative services, like check-cashing stores.
• Underbanked: People with a bank account but who still use non-bank services, like payday loans or prepaid cards, due to limited access or trust in banks.

These groups often include low-income individuals, minorities, or rural residents. I find it eye-opening that so many lack full banking access in a digital age.

How a Cashless Society Negatively Impacts the Unbanked and Underbanked

A cashless society, where businesses and services only accept digital payments like cards or mobile apps, creates barriers for the unbanked and underbanked. Here’s how it affects them:

Exclusion from Essential Transactions

Without cash, the unbanked and underbanked can’t participate in a cashless economy:

• Inability to Pay: Stores, restaurants, or transit systems rejecting cash block access to essentials like food, transportation, or utilities. For example, a cash-only user couldn’t buy groceries at a card-only supermarket.
• Service Gaps: Online-only services, like bill payments or subscriptions, require bank accounts or cards, leaving the unbanked locked out.
• Daily Struggles: Small transactions, like tipping or buying from vendors, become impossible without digital payment options.

I’ve seen cash-only signs vanish at local shops, and I worry about those who can’t swipe a card. It’s a real barrier to basic needs.

Increased Costs for Alternatives

The unbanked and underbanked often turn to costly non-bank services, which a cashless society exacerbates:

• Prepaid Cards: These charge fees (e.g., $5/month maintenance or $2/transaction), eating into limited budgets.
• Check-Cashing Services: Cashing paychecks can cost 1–5% of the amount, so a $500 check loses $25.
• Money Orders: Used for bills, these cost $1–$5 each, adding up over time.

I read about someone paying $50 monthly in fees just to access their income. A cashless world forces reliance on these expensive workarounds.

Limited Access to Digital Infrastructure

Digital payments require tools and knowledge that the unbanked and underbanked may lack:

• No Bank Account: Without one, they can’t get debit cards or link to apps like Venmo or PayPal.
• Technology Barriers: Many lack smartphones, reliable internet, or digital literacy, with 20% of low-income Americans lacking broadband, per Pew Research.
• ID Requirements: Opening accounts or getting cards often needs IDs, which some don’t have due to cost or legal status.

I’ve helped a relative navigate online banking, and it’s daunting without tech skills. A cashless society assumes everyone’s equipped, but that’s not true.

Vulnerability to Financial Exclusion

A cashless society can deepen social and economic marginalization:

• Job Limitations: Employers using direct deposit exclude those without accounts, forcing reliance on fee-heavy check-cashing.
• Social Isolation: Inability to pay digitally can limit social activities, like splitting restaurant bills or buying event tickets online.
• Discrimination Risk: Cashless systems may disproportionately affect minorities, who are more likely to be unbanked (e.g., 17% of Black households vs. 5% overall).

I’ve noticed how cashless venues feel elitist, shutting out those who can’t participate. It’s a subtle but real form of exclusion.

Increased Risk of Exploitation

Without cash, the unbanked and underbanked face predatory practices:

• High-Interest Loans: Payday lenders target those unable to access digital banking, charging 400%+ annual interest.
• Fraud Exposure: Prepaid cards or unregulated apps may lack fraud protection, risking savings.
• Dependency: Relying on others’ accounts (e.g., family) can lead to financial abuse or loss of autonomy.

I’ve heard stories of people trapped in loan cycles because they couldn’t access mainstream banking. A cashless shift makes them easy targets.

Broader Implications for Society

The negative impacts on the unbanked and underbanked affect everyone:

• Economic Inequality: Exclusion widens wealth gaps, as the unbanked miss opportunities like online savings or investments.
• Social Strain: Marginalized groups face greater hardship, potentially increasing crime or unrest.
• Policy Challenges: Governments must address access gaps, costing public resources.

I’m struck by how a cashless push could deepen divides in communities. It’s a problem we all share.

Mitigating the Impacts

To reduce harm, solutions include:

• Maintain Cash Options: Require businesses to accept cash, as some cities like New York mandate.
• Expand Banking Access: Offer low-cost accounts or mobile banking for rural areas.
• Improve Digital Inclusion: Provide affordable internet and tech training.
• Regulate Alternatives: Cap fees on prepaid cards or check-cashing services.

I support efforts to keep cash viable—it’s a simple way to ensure fairness for all.

Challenges in Addressing the Issue

Creating an inclusive cashless system faces hurdles:

• Business Resistance: Companies prefer digital payments for efficiency, resisting cash mandates.
• Infrastructure Costs: Expanding banking or internet access requires significant investment.
• Trust Issues: The unbanked may distrust banks due to fees or past experiences.

I’ve seen skepticism toward banks among low-income friends, and it’s a tough barrier to overcome.

Read our blog on What Are Some Ways That Someone Can Save Money on Their Rent?

Building an Inclusive Future: Key Takeaways

A cashless society negatively impacts the unbanked and underbanked by excluding them from essential transactions, forcing reliance on costly alternatives, limiting access to digital tools, deepening financial exclusion, and increasing exploitation risks. These barriers threaten their ability to meet basic needs and participate fully in society. I’m inspired by efforts to preserve cash and expand access, but concerned about growing inequities.

Why should you care? Because a cashless society could leave millions behind, affecting community fairness. What’s stopping you from advocating for inclusion? Support cash-friendly policies, learn about banking access, and push for a system that works for everyone.

Summarized Answer

A cashless society harms the unbanked and underbanked by blocking access to essential transactions, forcing them to use expensive alternatives like prepaid cards, limiting digital payment options due to lack of bank accounts or tech, deepening financial exclusion, and exposing them to predatory practices.