Let's Put the Future Behind Us

Reverse ATMs are springing up across America.

Aug 15, 2023

Dateline: Auckland, 15th August 2023.

I remember many years ago when I first went to a restaurant in Moscow there were two things that struck me as unusual. Firstly, when I was shown an extensive list of vodkas to choose from and declined and asked for a soft drink instead, they brought me a list of beers. Secondly, the restaurant had what appeared to be two ATMs in it. One of them was indeed an ATM and I saw people withdraw cash from it. But the second was not an ATM but a reverse ATM. People would draw money from the ATM and then feed cash into the reverse ATM to pay their mobile phone bills, utility bills and to get virtual card numbers to use for online shopping. I thought that after the invention of smartphones, these would disappear. But I was wrong, they are back. In America.

A Tale of Two Cities

Here’s how I paid for a meal in a London restaurant recently. The waiter brought a POS terminal over to my table and entered the total on the bill (which included a service charge of 15%) and then I put my hand over the terminal and paid using the contactless ring on my right hand. I could see the transaction notification show up on my iPhone within a couple of seconds.

Here’s how I paid for a meal in a New York restaurant recently. The waiter brought the bill to my table. I got a credit card out of my backpack and put it on the table. A couple of minutes later the waiter came back pointed out a sign saying that they did not accept cards but that there was an ATM at the back of the restaurant. I went to the ATM and got charged $3 or something to draw out some cash. The bill was like $37 so I left two $20 bills on the table and walked out, making a mental note to remember to scan the receipt later otherwise I would forget it for my expenses.

Needless to say, I won’t be going back. If I see “cash only” on the door of a restaurant I’ll walk on to the next one.

Frankly, putting non-free ATMs in stores and then refusing to accept cards seems like a racket to me. And not only to me. As one commentator notes “cash only with an ATM charging 3.5% means zero records/lots of cash” which might be great for the shopkeeper but not for me, or for taxpayers.

An ATM in a restaurant means that I am going to be inconvenienced to make life easier for the restaurant. Now, I know that restaurants in New York are well-known for their meticulous record keeping and scrupulous reporting for tax purposes, so their preference for cash is not in any way connected with money laundering, tax evasion or organised crime. So why do they want cash?

America had 470,000 ATMs (the machines where you put in a card to get out some cash) when their numbers peaked in 2019. By the end of last year, according to Euromonitor International, there were 451,000. Meanwhile, the number of reverse ATMs (the machines where you put in some cash to get out a card) is steadily growing. Why? It’s partly an unintended consequence of the ban on cash-free stores in a number of American cities and partly because the American financial system has created a vast reservoir of underserved people.

In Reverse

If you recall, a number of cities have been passing “Party like it’s 1949” laws to force merchants to accept cash. I call them “1949 ordinances” because, of course, it was in 1949 that the Diner’s Club kick-started the modern retail payments industry in New York.

One of these cities is New York itself. Back in 2020, it passed a 1949 ordinance. Instead of leaving the choice of payment method to private contract between a store and its customers, the city began fining businesses that were cash free – including upscale ice cream parlor Van Leeuwen and popular Bushwick pizza joint Roberta’s - meaning that they had no choice but to find a way to incur the expense and inconvenience of cash.

These bans are not universally popular, as you can imagine. Detroit has just passed one of these 1949 ordinances despite the pleas of Kai Bowman, who spoke on behalf of the Metro Detroit Black Business Alliance, calling it "poor policy that does nothing to help elevate our city, but instead offers criminal penalties ... to small business owners who have done nothing but try to adjust to the tough times."

You can understand the sentiment. These laws impose costs on merchants. I suppose it is possible some merchants might have gone over to electronic payments only on idealogical grounds, but I have to say that I haven’t met one of them. When a store goes cash free, it’s because it saves them money. Hence when a city passes a 1949 ordinance, it is essentially imposing a stealth tax.

In order to remove cash handling from the point of service and to speed up lines, as well as comply with the ordinances, many businesses are putting in reverse ATMs as well.

They Deserve CBDC

But why? Why not just go contactless? Well, there are people who cannot or will not get a bank account, who cannot or will not pay for a prepaid card, who do not want their purchases recorded in any way… who should pay to support them? It doesn’t seem reasonable to me to impose a stealth tax on merchants and nor does it seem reasonable to me to make marginalised groups pay reverse ATM and prepaid fees. What, then, should be done about the unbanked? My view, as I have written here before, is that unbanked is not the problem and banks are not the solution. What we need here are simple payment accounts, accessed through digital wallets, that enable people to pay and get paid and that’s it.

Give a gift subscription

Maybe that’s where CBDC will make a difference at some point in the future, but for now reverse ATMs have been installed at most Major League Baseball and National Football League ballparks, plus cashless attractions like Hersheypark, Six Flags and many waterparks. The new phrase here is “cash digitization”, which I rather like, as it reinforces my obsessive distinction between digital money and digitised money.

(It would never occur to me to take cash to an attraction or to a waterpark or to a sporting event. I can assure you that on every visit to the home of Woking FC for as long as I can remember, I have never paid for my burger and chips using anything other than my iPhone or a contactless wearable, although I assume that some people still pay with cash.)

Exceptional

America is an odd place when it comes to payments. It seems incredible to me that there is a business case to be built around taking cash and converting it into cards at a ball park, but there you go. Interestingly, one of the providers of reverse ATMs in America speculated that in the future there might be no need to dispense a physical card from the machines, instead offering customers “a virtual card on your smartphone”, much as they did in Russia all those years ago!

American innovation at retail point-of-sale.

In payments, there really is nothing new under the sun (except for CBDC, of course).