Data: What's killing cash?

December 19, 2018 9:47 AM

The age-old saying that “Cash is King” seems to be somewhat of an irony in today’s world of premium metal credit cards, Venmo, electronic bill pay and recurring subscription payments. The fact that consumers each year are increasingly turning to the internet for their holiday shopping makes cash feel like a relic. In a strange paradox for paper currency, the payment company Square has called its mobile application for money movement the Cash App, even though no physical cash is involved.

While credit cards have been around since the 1950s and debit cards introduced years later, they both have become indispensable to the modern consumer. In fact, in certain retail sectors consumers can only use payment cards or mobile payments to make a purchase. Take for example the airline industry. It’s virtually impossible to buy an airline ticket without a debit or credit card — and anyone who finds a way to do so will certainly raise suspicions among the authorities. Once on board the plane, most airlines won’t accept cash for in-flight snacks.

Currently, the only legal industry heavily awash in cash is retail cannabis — and that’s only due to the market's inconsistent legal status. If the Federal government were ever to legalize marijuana, as many states already have, retailers and dispensaries would immediately move away from cash.

More and more Americans each day are finding their usage of cash to be declining. For those with higher incomes, the percentage of people who eschew the use of cash on a weekly basis is even higher. According to two annual studies by the Pew Research Center, one conducted in 2015 and the other in 2018, the number of people who said none of their weekly purchases involved using cash went from 24 percent in 2015 to 29 percent in 2018.

If the affluent (making $75,000 or higher in annual household income) are more than twice as likely to go a whole week without spending any cash for purchases than low income (less than $30,000) consumers, does it mean cash is still king for those less fortunate? Not necessarily so, based on the 2018 Pew study. It found that only 29 percent of low income consumers made all or almost all of their purchases in cash, compared to 17 percent of middle income ($30,000 to $74,999) and 7 percent of affluent consumers.

In 1975, American Express launched an ad campaign that Forbes calls one of the best of all time: “Don’t leave home without them,” for its traveler cheques business. The ad campaign featured Oscar-winning actor Karl Malden and eventually evolved into “Don’t leave home without it” in reference to the American Express Credit Card. So when it comes to Americans leaving their homes to go on the road, wherever it may take them, an increasing number don’t worry about having cash in their wallets or purses.

Data from the 2015 and 2018 studies conducted by the Pew Research Center on U.S. consumer payment habits reveal that an increasing number of people don’t worry whether or not they have cash with them, since there are many alternatives to make purchases. These days consumers are more likely to be concerned whether or not they have their smartphone or house keys than to be concerned about their wallets, let alone if there is any physical cash in it. Almost half (46 percent) don’t worry if they have cash, up from about four in ten (39 percent) in 2015.

The almighty debit card reigns supreme in the U.K. when it comes to making purchases, having just ousted the long-time leader, cash. Based on the U.K. Payments Markets Summary that is produced by the banking and financial services trade association, UK Finance, debit cards were used in 13.2 billion transactions, up 14 percent from 2016. This compares to only 13.1 billion transactions where cash was used, down 15 percent from 2016. The trade association reports that most U.K. consumers have a debit card (98 percent) while only 64 percent own a credit card.

Another major factor in the decline of cash usage is the popularity of contactless cards. Recently Worldpay announced that the UK market reached a tipping where contactless “tap and go” transactions overtook chip and pin transactions for in-store card payments.

Data released by Visa validates this assertion by showing that contactless Visa transactions had reached 49 percent of its volume in September 2017. In the same data released by Visa it showed the disparity in contactless card adoption with Australia leading charge at 92 percent contactless while the U.S. was the laggard at 0.6 percent of transactions being contactless.

Most consumers still lean toward using cash for that pack of gum, bag chips or really any item under $10. According to the a consumer payments diary study conducted in 2016 and released in 2017 by the Federal Reserve Bank of San Francisco, cash was used in 55 percent of transactions under $10 compared to debit cards owning 23 percent of those transactions. Only when transaction sizes grew to over $25 did paper currency fall out of favor as a payment choice.

Once the transaction size grew to $100 or greater, other payment forms enter the mix in meaningful amounts. Checks and electronic payments were rarely used for transactions under $25. However, electronic payments and checks accounted for 32 percent and 20 percent of transactions $100 and over, respectively.

The study does highlight one major limiting factor that stands in the way of cash growing in potential use – it can be used only for in-person transactions. The study also notes that in 2016, only 75 percent of all payments were conducted in-person. Given the popularity of e-commerce, it is very likely that the number of in-person transactions is only going to decrease in proportion, further limiting the ability to use cash.

Sweden’s Central Bank, Sveriges Riksbank, reported cash usage in its latest consumer diary study of Swedish consumer payment habits as continuing its precipitous fall in demand.

Only 13 percent of consumers reported using cash for their last purchase compared to 39 percent just eight years ago. Because cash is so quickly disappearing from consumer wallets, there are lawmakers who are concerned that access to cash will also vanish. The Swedish Parliament’s Riksbank committee has proposed forcing the country’s largest banks to keep cash on hand in their branches for withdrawals and to accept daily cash receipts. Lawmakers have also suggested that 99 percent of Swedes should reasonable access to cash, defining it as a maximum distance of 25 kilometers (16 miles) to the nearest cash withdrawal.

However, the country’s competition and financial authorities have both rejected the proposal as it would affect only banks with more than $8 billion in assets. The Swedish Competition Authority said such a proposal would hurt the largest banks, benefiting smaller ones. The

Swedish Financial Advisory Authority also rejected the proposal by stating that securing access to cash should be a responsibility of the state.