Is Cash Dead?

There’s a popular perception that cash is on its way out. In fact, some restaurants—like the chain, Sweetgreen, for example—have been attracting media coverage because they no longer take cash and as you may have noticed, cash is no longer accepted for airline drink service, while most corporate dining rooms are now cashless as well.

But is cash really dying? According to PYMNTS.COM and its Global Cash Index™ United States Analysis, “Cash usage has remained relatively steady in the states since 2003, ranging between 14.3 percent and 15.5 percent of the gross domestic product (GDP).” Moreover, according to the 2016 Diary of Consumer Payment Choice, cash is still the most commonly used form of payment (31 percent), as compared to debit cards (27 percent) and credit cards (18 percent). Cash tends to be used for small and relatively small transactions. The aforementioned Diary notes that the average value of a cash transaction is $22, as compared to $112 for the average non-cash transaction.

Show Me The Money, Grandma

Another notable statistic is that consumers who hold cash tend to be older and relatively more affluent. Per the Cash Product Office of the Federal Reserve System and its “Who Holds Cash?” report, “people who hold cash are more heavily concentrated in the 45 and older age groups, with a much smaller share of people who are under age 34. The share of the 18-24 age group who hold cash is half the size of the share of the 18-24 age group in the general population,” notes the report, which goes on to differentiate among different types of cash users, including “cash lovers,” “just-in-case holders” and the “cash-averse.”

As you might expect, cash lovers always carry cash and like to pay for everything with cash. The just-in-case holders always hold cash, but rarely spend it and prefer using credit and debit cards. Meanwhile, the cash-averse avoid holding or spending cash or spend it.

Most notable, however, is that the cash lovers tend to be older and the cash-averse tend to be young. “Millennials (ages 18-34) make up less than one-fifth of the cash lover group, and only five percent of cash lovers are under 25 years old,” says the report. Meanwhile, the average age of the cash-averse group is 35, and “an overwhelming majority (62 percent) is younger than 35.” This could mean that cash is already in the midst of a long, slow decline. Or perhaps today’s Millennials will display a growing fondness for cash as they grow older and mature.

Cash vs Competition

What’s inescapable, though, is that cash is facing increasing competition, which perhaps explains why the Global Cash Index expects cash’s share of GDP to decline to 11.2 percent by 2021.

To be sure, cash still retains most of its perceived advantages: Cash is widely accepted, it allows for purchase anonymity and it inherently lends itself to budget discipline. It’s also a payment option for unbanked and underbanked consumers.

But advantages aside, there are simply more and more options for making non-cash payments these days by using credit and debit cards, ACH, direct debit, money orders, PayPal, gift cards, person-to-person (P2P) apps and “tap-and-pay” mobile payments, among other possibilities. Moreover, rewards—cash back rewards, for example—are a powerful incentive, which is one reason why credit cards were identified as the most preferred payment type in abpayus.com. This is the first time credit eclipsed debit since A&B PAY began requiring respondents to have both a credit and debit card. Another factor is the “growth in e-commerce and mobile, channels where many consumers express a preference for using credit,” notes the survey.

The decline (or persistence) of cash may be determined by how well newer payment options—like mobile payments—are accepted by consumers, with the acceptance level driven in part by available incentives and the level of merchant engagement with customers.

“There remains a significant number of consumers who have not adopted mobile payments for a number of reasons, including security concerns, lack of perceived benefit and ease of use of other payment methods,” offers the American Bankers Association’s 2017 Payments Strategy Survey.  “However, there are forces that will likely spur further growth…. For merchants and retailers, payments are no longer merely a means for accepting money and finalizing a transaction. Rather, payments are a critical component in creating new ways for merchants to engage with their customers and a key driver of consumer loyalty and satisfaction.”

Those are words of wisdom that merchants can take to heart.

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