Amazon said Wednesday that its Amazon Paycode service, which allows customers to pay for Amazon purchases in cash at Western Union offices, will come to the U.S.
The change is welcome news to advocates for financial inclusivity and experts on low-income workers, who say the U.S. debut of the program has positive implications for millions of Americans.
“There are a lot of people who predominantly conduct their transactions in cash, and they just don’t do Amazon,” said David Newville, vice president of policy and research for the nonprofit group Prosperity Now. “It can’t hurt to just offer low income folks more low-cost options.”
The number of people who will now have more access to Amazon is surprisingly large. Based on a 2017 survey, the FDIC estimated that 6.5% of U.S. households – 8.4 million – did not have a bank account, limiting access to credit cards and other electronic payment options. Another 18.7%, or 24.2 million households, were ‘underbanked,’ meaning they have a bank account but also use non-bank financial services, such as payday loans or check cashing.
Those households also tend to be low income, says Newville, for a simple (if perverse) reason: “It costs money to have a [bank] account, if you’re poor in particular.” Overdraft and other fees fall much more heavily on the poor, he says. Financial institutions such as Bank of America sometimes even charge maintenance fees for accounts with low balances. Amazon Paycode, by contrast, does not charge an additional fee.
Newville says many other countries, ranging from Kenya to Sweden, have banking and payments options far friendlier to low-income people than are available in the U.S. For many Americans, then, Newville says sticking to cash is “actually a really smart decision given the resources they have available.”
The dependence on cash can itself cost shoppers money by limiting their options, though. For instance, the U.S. Agriculture Department has identified vast ‘food deserts’, often in low-income or rural areas, where shoppers don’t have easy access to conventional grocery stores. And despite their discount veneer, the Dollar Generals and Family Dollars that have filled that void are often actually more expensive than mainstream retailers.
Amazon’s new program will not give cash customers access to the Amazon Fresh grocery delivery service, but Amazon offers a variety of grocery items outside of the Fresh program. And more generally, access to Amazon gives cash shoppers a potentially money-saving option. But Amazon’s shift isn’t simply a philanthropic gesture.
Growing inequality has made lower-income, more cash-dependent shoppers an increasingly important market for American retailers. Dollar stores, in particular, have seen huge growth over the last decade – and Amazon may have taken note.
“Amazon appears to appreciate that by excluding cash communities, they’d be leaving money on the table. Inclusivity is in capitalists’ best interest,” says Mae Watson Grote, founder and CEO of The Financial Clinic, a New York City-based financial literacy nonprofit.
But Grote worries that the continuing growth of ecommerce and electronic payments could have deepening impacts on cash-dependent consumers. “A two-tiered system would effectively cut off millions from essential goods and services, promoting inequality.”
“Many businesses are trying to go cashless,” says Mehrsa Baradaran, a specialist in banking law at the University of California at Irvine and author of How the Other Half Banks, a study of low-income people and the banking system. “This saves them a lot of money, but it excludes the unbanked and underbanked who happen to be low-income consumers. These consumers have to pay a premium to use prepaid debit cards or mobile apps with fees to buy goods, when those with bank accounts or credit cards do not have such fees.”
Some socially-conscious businesses have already begun paying attention to the broader implications. Earlier this year, salad restaurant chain Sweetgreen, for instance, reversed its longstanding no-cash policy.
Though she praises Amazon for joining in, Baradaran says the underlying problem of banking access demands broader solutions.
“Payment [services] are a public good,” she says. “Fixing this is the responsibility of the banking sector, and the legislators and regulators overseeing the sector.”
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