Payment systems globally for decades have been on a constant path in transforming traditional paper-based transactions into electronic ones, with payment cards as one of the chief drivers. More recently, mobile-based payments have done the job in less-developed countries, particularly in Africa.
As a result, one might expect cash use to be on the decline, with the potential for paper currency altogether to be on its way to extinction. Yet despite all the effort to displace it, cash use has not disappeared, and it likely won’t any time soon, new research suggests.
In fact, even in the U.S., where electronic payments are especially prevalent, the ratio of cash in circulation relative to nominal gross domestic product has increased since 2000, a phenomena matched in other noneuro countries, according toa new report from the Federal Reserve Bank of Boston “Consumer Cash Use: A Cross-Country Comparison with Payment Diary Survey Data.”
Such findings appear to mirror the beliefs of various companies whose existence relies on cash have observed for some time. During a recentPYMNTS.com podcast interview, for example, Steve Rathgaber, CEO of Cardtronics Inc., a global owner and manager of ATMs, said he expects cash being a viable form of payment for years to come and that the theory debit and credit cards will lead to the end of cash is warped.
“It’s one of those leaps of logic that just doesn’t stand up to look what’s actually happening,” Rathgaber said. “I think mobile will be a force to be reckoned with with payments. I think it already is, and it’s a growing force. But I find mobile to be more about a form-factor migration from plastic, where the credit card is the device, or the debit card is the device, onto other kinds of digits housed in the mobile instrument.”
There’s also the issue of consumer preference, as consumers tend to choose to use cash over any other payment forms, including debit and credit cards, according torecent report from the Federal Reserve Bank of San Francisco.
Filling the gap
The Boston Fed conducted its research to fill a gap in knowledge on cash-usage trends. For the report, the bank collected information from large-scale payment diary surveys conducted in Australia. Austria, Canada, France, Germany, the Netherlands, and the United States. It then paired the data on individual payments collected over a fixed number of days with information on the detailed characteristics of individual consumers.
Among the key findings, between 46 percent and 82 percent of all payment transactions are conducted using cash, while the composition of noncash payments varies across countries. In Australia, Canada and the U.S., for example, credit cards are more important, while they are of only minor relevance for the European countries, where debit cards are the chief electronic means of payment, the report notes.
Moreover, the most payments are conducted through only a few payment instruments, as the accumulated cash, debit and credit share is greater than 95 percent for Australia, Austria, Canada, Germany and the Netherlands, and it exceeds 88 percent in France and the U.S.
In looking at the primary reasons for the differences, the report notes that use of cash may be correlated with the level of credit card ownership if cash and credit cards are substitutes in consumer payments. Moreover, in all seven countries, the average value of cash transactions is lower than the average value of card transactions, according to the report.
“The level of cash balances might affect consumers’ use of cash, but similarly, the use of cash may also be a determinant of the amount of cash consumers carry,” the report notes.
In reviewing the diaries, the Boston Fed also noted various observations of payment characteristics. For example, the mean number of transactions per person per day varies from 1.4 to 2.1 transactions across countries, while the median amount spent per person per day ranges from $20 to $41. This suggests the structure of consumer payments is similar across countries with respect to the number and value of transactions, as consumers conduct only a few payment transactions per day, and most consumer expenditures are relatively small in value, the report found.
The use of cash not surprisingly also decreases with transaction size. In all countries, cash predominates for the smallest 50 percent of transactions. For the largest 25 percent of transactions, the use of payment instruments is very heterogeneous across countries, the Boston Fed noted.
Cash use also decreases with education and income, but it varies across age categories, the research found. “Older” people use significantly more cash than do younger people, except in the U.S., where younger individuals use more cash than do older individuals, according to the report. On the whole, however, consumers generally value cash for its perceived acceptance, costs, and ease of use.
Cards versus cash
In addition, though the levels of card ownership differ across countries, overall card ownership is rather high across the board, and consumers use only a few payment instruments in addition to cash, according to the report.
The prevalence of credit cards illustrates how socio-demographics plays a role, as differences in credit card ownership exist along all age, income, and educational groups. “These differences suggest that there are factors related to the market structure that affect the prevalence of credit card ownership,” the report notes.
Moreover, higher use of cash is associated with lower levels of card acceptance at the point of sale, and cash use varies across types of purchases and venues, the Fed report states.