Cash survives in the US thanks to illegal immigration and the cost of credit cards

At a time when the Credit cards and other electronic payments triumph as the main payment method worldwide, cash survives in USApartly due to the high commissions imposed on card payments, and the existence of millions of illegal workers living in a parallel circuit.

Although in 2023 the percentage of cash payments fell to 16%, it was still the third most used payment method that year, behind credit and debit cards, according to the annual report on consumer payment choice from the US Federal Reserve (Fed).

The central bank says cash use was driven by in-person purchases and a preference for coins and bills among two categories of the population: low-income consumers and those over 55. It does not name the category, but there is a third category: illegal immigrants.

In the case of recipients, the main reason why merchants prefer this method is the commission of up to 4% per transaction charged by credit card companies and payment applications, says the economist. Curtis Taylorprofessor at Duke University (North Carolina).

For this reason, in cities like Los Angeles the “Cash only” policy is very commonespecially in the typical Mexican food carts that roam the city, according to Manuel Chacón, a Spaniard who until a few months ago lived in this Californian city. The same is true of street fruit and vegetable stalls throughout the country.

Similarly, New York is full of establishments that hang the sign ‘cash only’ on their doors, especially in the Chinatown neighborhood, in some areas of Brooklyn, and, as in Los Angeles, in the legendary food trucks that can be found on practically every corner of the city.

Taxi drivers, fruit sellers, bicycle workshops or bricklayers

New York’s yellow taxis also offer two fares, being the cheapest for those who are willing to pay in cash. This form of payment is even recommended in bicycle repair shops: “I went to a shop to fix a broken chain on my bike and the mechanic offered me a lower price if I paid in cash,” says John Williams, a young American living in the Big Apple.

And it is also common in other sectors, such as construction: Rosa Torres says that when she hired a team of bricklayers to build a staircase in her house in New Jersey, they told her that if she did it without municipal permits, the work would be cheaper but she would have to pay in cash or by transfer so as not to report to the authorities. The bill came to US$3,000.

Torres also says that in Miami, where he lived for a few years before moving to New Jersey, restaurants explained to customers that, “because of taxes,” the price of food was more expensive if they paid by card.

A Brooklyn construction company that prefers not to give its name employs legal and illegal workers, the latter paid with envelopes full of hundred-dollar bills every two weeks, and the money escapes any official radar.

A legal, but dangerous, payment method

The use of this payment method has “few advantages” for the economy, because “It facilitates black markets such as drugs and tax evasion”Taylor explains. However, the law does not prohibit establishments from favouring cash payments, which benefits small businesses that “tend to operate on narrow margins and cannot afford such fees,” the professor points out.

However, it is noteworthy that Cash is less secure, because “it is susceptible to theft, embezzlement or loss and also requires frequent visits to the bank.”

High fees associated with dataphones led a group of New York City retailers to sue the company in 2005. Visa and Mastercard for charging sellers these fees every time customers used their cards on these devices.

Last June, a federal judge in the Eastern District of New York formally rejected a $30 billion settlement between the two companies and the group of sellers, prolonging a decades-long litigation that highlights the complicated coexistence between the two payment methods.