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Myth busters: Latest Fed Research Confirms Resilience of Cash

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“No one uses cash anymore.” You’ve undoubtedly heard this many times, to the point that it has almost become conventional wisdom. Two indicators may suggest otherwise as ATMs continue to enjoy plenty of demand, even as cash back at the point of sale (POS) becomes commonplace.

Enter The Federal Reserve Bank of San Francisco (The Fed) to confirm our suspicion that conventional wisdom is not all that wise with a quantitative report issued on cash and consumer payment preference. It reveals that cash remains the most frequently used consumer payment instrument and, perhaps most surprisingly, that it’s generating new use cases among the same Millennials who are supposedly our most digitally-savvy generation.    

More Demand, Less Use

Actually, the story isn’t that simple. At a macro level, The Fed reports that the US cash in circulation continues to increase and there is no sign of it weakening. At the same time, the share of cash transactions fell between 2012 and 2015 – both in terms of frequency and dollar value. Nonetheless, at 32 percent of all transactions, cash remains the most commonly used payment instrument.

Cash is particularly dominant for transactions of $25 or less, where it is used over half the time. Interestingly, the volume of such low-value transactions declined, pulling down cash usage rates. The prominence of online and remote transactions – which cash is not a viable settlement option – also spiked since 2012.

The Dollar’s in the Details

The story becomes more nuanced when drilling down to specific use cases. Cash is used a whopping 75 percent of the time for gifts and transfers to other individuals. This P2P arena has long been considered a “holy grail” for eliminating paper (both cash and check) from the US payment system, and has attracted high-profile entrants like PayPal, Venmo and more recently, Zelle. However, the data shows that a significant paper trail still exists.  In fact, the top three consumer use cases in this regard – comprising of nearly four-fifths of cash spending events – cash remains the most popular payment option by a wide margin.

Consumer Segments Defy the Stereotype

More surprises emerge in the demographic splits of consumer behavior. The 18-to-24 age cohort – the youth demographic that many assume has migrated to a fully-electronic lifestyle – has the highest share (38 percent) of respondents who consider cash as their “preferred” transaction method. Recent panel discussions with Millennials at various industry conferences have yielded similar findings. Other age groups prefer cash fairly consistently in the 25 percent range. Cash fares even better as a backup payment preference and remains appealing for income groups as high as $150,000. These findings support the notion that cash usage is not about to fall anytime soon. 

In other words, there’s little chance ATM machines will be put out to pasture. They will continue to be an essential component of any consumer-facing banking strategy for many years to come. This also means a continuing need to keep these machines current and in compliance with the latest industry mandates and feature functionality.

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