These days, when we think ‘payments’ we usually think the electronic kind – cards, mobile, online. Roger Replogle (Off-site), executive vice president and cash product manager in the Federal Reserve System’s Cash Product Office (CPO), thinks about the legacy kind – cash – and its usage within the modern payments environment and among consumers.
So what role does cash play in an increasingly electronic environment? Electronic payment advancements are making strides, suggesting cash may not be ‘king’ anymore, but research shows it is still within the ‘royal family’ of payments. The CPO uses data from the Diary of Consumer Payment Choice (DCPC) to understand consumer cash use and anticipate its ongoing role in the payments landscape. We had a chance to sit down with Roger to discuss those insights.
Q: Roger, thank you for sitting down with us to discuss cash as a payment. I’m going to cut right to the chase: Is cash usage declining?
A: Cash as a payment medium is alive and well, even if it is slowly decreasing as a proportion of total payments. Cash’s share of total payments has declined, on average, 1 to 2 percentage points each year since 2015, when we began conducting DCPC studies regularly. The latest DCPC shows cash is the second most used payment instrument accounting for approximately 26 percent of all payments, and about 35 percent of in-person payments.
We are also seeing the demand for cash continue to rise, as the value of currency in circulation, at the end of 2018, was over $1.67 trillion dollars while at the end of 2015 the value was $1.38 trillion, a 17 percent increase.
Q: Why is currency in circulation still increasing despite the growing buzz and use of electronic payments?
A: There are a number of factors here. The latest payment data show cash is the most used payment instrument, and individuals – domestic and abroad – greatly value it as a store of value (savings). Additionally, as the economy continues to grow, the value of currency in circulation will continue to grow as well until or unless cash loses a much greater portion of the payments pie.
Q: So what types of consumers are using cash? It seems younger individuals are usually early adopters of technology, is it safe to assume they aren’t using cash?
A: Debit cards are the most popular payment instrument for individuals 25 to 34, and account for about one third of this age groups payments. On average, this group uses cash for about 20 percent of their payments. However, those under the age of 25 use cash for about 1/3 of their payments and cash’s share in this group has been consistent for the past 4 years.
Q: But what about online shopping? Surely that is reducing cash use or will very shortly?
A: In a word, probably. For the past few years participants have reported an increase in online payment use. Much of that increase has been an increase in online bill payments. But for non-bill payments, approximately 88 percent take place in person, and this percentage has been decreasing since 2015 by one to two percentage points each year. This suggests that online shopping is eating into cash usage by reducing opportunities to use it. But because we don’t know whether cash would have been used if these payments were in-person, I have to stick with ‘probably.’
Q: Mobile payments seem to be an emerging payment trend that is sticking around. Like online shopping, is this having an effect on cash usage?
A: It’s true, there has been an increase of individuals using their phones to make payments. In 2015 about 4 percent of payments used a mobile phone and that share increased to 8 percent in 2018, though it is important to note the majority of mobile payments use credit or debit cards to fund the payment. Interestingly, usage rates among our survey participants do not vary as much by age as one might expect. Across the 25 to 54 age cohort, we’re seeing similar use of mobile payments. Those under 25 have lower usage rates, probably because they have less access to credit and debit cards.
All that said, our research suggests this is having little effect on consumers’ cash usage. At this point, mobile payments do not appear to be a substitute for cash, but rather are replacing the card “swipe” with a card “tap” to complete a payment.
Q: Given all these electronic payment advancements, for what types of purchases is cash mostly used?
A: Cash is generally used for small value payments at a wide variety of merchant types. Cash accounts for 42 percent of payments that were less than under $10. In addition, two thirds of all cash transactions took place at merchants selling food, personal care supplies, auto related items, and general merchandise. These merchant categories make up a majority of payments in the DCPC showing cash is used for “everyday” purchases.
Q: So, in conclusion, the U.S. isn’t going cashless?
A: Our research suggests that if the US is going cashless, it won’t be anytime soon. People like cash because it is ubiquitous, near universally accepted, and settles payments instantly. They tend to rely heavily on cash during emergencies for these same reasons. It is the most used payment instrument and is the most used backup payment for those who like to use debit and credit cards. During the 2018 DCPC about 75 percent of individuals reported carrying cash on any given day and 95 percent carried cash at least one day. In addition, the average value of cash people carry on a daily basis has increased from about $50 in 2015 to about $60 in 2018.
While many countries are seeing a variety of trends (increase in mobile payments, increase in cryptocurrency use, etc.) that are eroding cash usage, preferences and payment use have been fairly consistent in the U.S. even with the advent of emerging payments. We continue to monitor how such trends may be used as substitutes for cash. In addition we continue to watch other areas (contactless cards, mobile payments, cryptocurrencies, etc.) to understand how consumer adoption may affect future payments.
To read more about cash, including trends in its usage and who is using and holding it, read the 2018 Findings from the Diary of Consumer Payment Choice (DCPC) (Off-site).