Where Cash Still Dominates, and How We Can Take It Digital

Where Cash Still Dominates, and How We Can Take It Digital

Where Cash Still Dominates, and How We Can Take It Digital

Charles Keenan

Charles Keenan

Charles Keenan has written about payments since joining the American Banker as a staff reporter in 1997, a time when automated teller machines were appearing just about everywhere but people's living rooms thanks to the relaxation of surcharging rules.

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While cash still remains a common way to pay in the United States, its increasing digitization could accelerate in the coming years, leaving coins and bills to go the way of the flip phone, big hair and leather pants.

For one, smartphones equipped with near-field-communication (NFC) offer a big potential facilitator toward replacing cash transactions. With the use of NFC for wallets like Apple Pay and Android Pay, consumers can just wave their phone in front of a point-of-sale device to complete the transaction.

New ways to pay

Meanwhile, new ways to pay for basic goods and services keep materializing, steadily replacing the use of cash. Think Uber, Venmo, and Starbucks – all have introduced ways to pay electronically, replacing instances where cash could have been used.

Other places just don’t accept cash anymore: Southwest Airlines and Virgin America, for example, accept only plastic in the skies. The growth of e-commerce also continues to siphon away what could be cash users in brick-and-mortar locations. All told, the push to e-payments will lead purchase transactions generated by general purpose cards to reach 163 billion annually in the United States by 2024, up from 88 billion in 2014, according to The Nilson Report.

"We're seeing a massive shift, both globally and nationally, in the preferred method of payment among consumers," says Monica Eaton-Cardone, chief information officer and founder of Global Risk Technologies, a Dublin-based payment risk mitigation firm with an office in Tampa Bay, Fla. "It only makes sense that governments are starting to take notice and encourage electronic payment methods as consumer trends change."

Global trends

In Europe, some states are actively seeking a reduction in cash usage. Denmark, for instance, last year proposed that retailers such as clothing stores, restaurants and gas stations should no longer be legally required to accept cash payments. Dankse Bank's MobilePay was being used by half of the country's 5.6 million citizens as of the end of 2015. Sweden is making a similar push to kill cash: The country’s currency and coins in circulation have decreased to 80 billion krona in 2014, down from 96 billion krona five years earlier, according to the Bank for International Settlements.

In the United States, even the extension of prepaid cards via NetSpend, Green Dot and American Express' Serve all have helped increase participation among the underbanked in e-payments. "If you look at the apps they have created, they are used extensively," says Hamed Shahbazi, chairman and chief executive officer of TIO Networks Corp., a Vancouver-based vendor that helps low and moderate income consumers make bill payments. "It's a very empowering tool that they have. What you are increasingly going to see is mobile loading of a proxy vehicle such as a stored value card, then use of a mobile experience to orchestrate that transaction."

For all the promise of a cashless society, there are some major factors making cash still a popular choice in the United States. Let’s face it, it's still pretty convenient to use – and there are no transaction fees.

The appeal of cash

What's more, cash still dominates particularly low-value transactions. About 78 percent of consumers used cash over the past year when they needed to pay someone else back, compared with just 18 percent using a check – the next-most frequent method – according to a survey of 1,000 respondents by Cardtronics Inc., a Houston-based owner of 190,000 ATMs in North America and Europe.

About 63 percent used cash for convenience-store purchases, compared with 41 percent saying they used a debit card. Via grocery stores, restaurants and tipping, cash still holds strong. Cardtronics estimates there are about 9.6 billion ATM withdrawals annually, a number that's holding steady, says David Dove, president of Cardtronics' North American business group.

"There are a lot of enduring drivers," he says. "From a consumer perspective, the everyday up-and-down-the-street Joe and Mary have cash in their pockets."

Also, despite the growth of prepaid with the unbanked, the medium has helped support cash usage, as cardholders tap ATMs, Shahbazi argues. "A lot of people think, 'Well mobile is coming, cash is going away,'" Shahbazi says. "You would think in this highly digitized world that ATMs would not be as prevalent, as more people conduct transactions electronically. Cash won't go away."

Part of cash's staying power is economic: e-transactions can be audited. There are also psychological issues, especially with privacy. Unlike in Denmark and Sweden, there would likely be much more resistance to government intervention in the United States.

"There is passive fighting that will always occur in the U.S. between those people who want to maintain their privacy and those who think efficiency of the system should keep moving forward," says David Robertson, publisher of The Nilson Report.

Still, mobile technology might help cash usage quietly diminish. Within 10 years, most consumers will have an NFC-capable phone, opening up more opportunities to pay electronically, from person-to-person to the POS. Robertson says: "The only people who don't make an e-payment of some type will be those who are willing to opt out. All of the inefficiencies will have been squeezed out of the system by then."

Evolving perspectives

Attitudes are changing too. For Americans, security used to be the No. 1 concern with mobile as a payment device, Eaton-Cardone adds. Now consumers are thinking more about speed of the transaction. "We are getting away form the thought, 'Hey we have to touch it, we need that cash to feel secure,'" she says.

If it weren't for psychology, we might be further along toward becoming cashless. "There is nothing technological that is separating us from being cashless… it's behavior," Robertson says.

The statements and opinions of the writer do not necessarily reflect those of TSYS.

Other Articles by Charles

Charles Keenan

Charles Keenan has written about payments since joining the American Banker as a staff reporter in 1997, a time when automated teller machines were appearing just about everywhere but people’s living rooms thanks to the relaxation of surcharging rules.

His work at the American Banker included writing about credit and debit cards, merchant processing, and bank stocks. He later freelanced for the Banker and industry publications such as Banking Strategies, Bank Director, Community Banker, and U.S. Banker. He also writes about investing, insurance and health care, and is based in Los Angeles.

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