Don't count cash out just yet

Cashless may be making waves in headlines, but remains a strong payments option despite efforts to push it to the side.

The Federal Reserve System's FedCash Services found the average amount of cash held in an adult's pocket, purse or wallet rose from $68 to $73 this year as part of its Diary of Consumer Payment Choice study.

"We found that some of the major payment trends that started early in the Covid-19 public health emergency have continued into the pandemic's later stages," Kathleen Young, executive vice president of the Federal Reserve Bank of San Francisco and chief of FedCash Services, said in a press release. "Consumers have continued to use credit cards — the most used payment method in 2022 — more often. Nonetheless, cash accounted for approximately 20% of all consumer payments since 2020, and this enduring demand indicates that there are consumers who need or choose to use cash, underscoring the need for a strong and resilient payments system."

The same trend is holding true across the pond in the U.K. as a YouGov survey found only 3% of the public never use cash. And as for efforts to transition to a cashless society: only 12% of U.K. residents want a cashless society and 69% oppose it. In addition, 71% would support a law to force British businesses to accept cash.

"Cash use for payments has certainly reduced, probably to below 20% of total payments. However, cash in circulation continues to increase, with over 90 billion pounds now in use and the average ATM is still dispensing around 80% of the value of cash it was dispensing pre pandemic. So, despite a host of negative pressures, cash is in many ways holding up rather strongly," Ron Delnevo, chairman of the Payment Choice Alliance, said in an email interview.

A NMI study revealed 81% of consumers have used cash for in-store purchases in the last six months.

"One key data point our Payments Innovation Pulse Report revealed is that 97% percent of consumers use cash because it meets all their payment needs. Consumers state that cash is their No. 1 most-used payment method for in-store, in-person purchases," Peter Galvin, chief growth officer at NMI, said in an email interview. "Combined with consumer sentiment around the latest payment solutions, and speed and convenience, cash has led the way in consumer payments preferences and is the driving force behind its usage."

Galvin pointed out that 34% of respondents described cash was the "most convenient and fasted payment method."

Part of the reason for this resilience is the current economic uncertainty, even among Gen Z.

"In the U.S., 53% of consumers use cash more now than a year ago, with 16% stating they have more control of their budgets when they use cash," Galvin said. "This trend is especially evident with Gen Zers as 69% of these consumers in the U.S. use cash more now than last year and 23% of them say they use it for the majority of purchases."

Despite this trend, some banks are pushing the cashless trend in the U.K., according to Delnevo.

"Banks decided years ago to reduce dramatically the numbers of branches and ATMs they operated," he said. "This decision made it inevitable that banks would support a move towards cashless, because without branches and the associated ATMs, banks cannot service the cash withdrawal OR deposit needs of either business or personal customers. As well as reducing access to cash withdrawal facilities, banks have artificially inflated the cost of cash by arbitrator increasing cash deposit charges."

However, despite what banks do, some regions have passed laws against cashless businesses, under the logic that it unfairly targets the unbanked and underbanked who do not have access to a bank account. For example, New York City banned the practice in November 2020 as part of its Cashless Ban Law.

In the U.K., the Payment Choice Alliance is promoting a law to make businesses accept cash as well.

"The Payment Choice Alliance is looking for a UK Payment Choice Act to be passed, giving the public the clear legal right to spend their cash when and where they choose to do so," Delnevo said.

He has identified several key reasons behind this act — protecting the 4% of adults in the U.K., the more than 2 million people who are unbanked as well as the more than eight million total that rely on cash.

He also identified multiple concerns about cashless trends such as, "increasing retail prices as payment competition diminishes, infringement of person choice, threat to privacy, increased monitoring and control by the "authorities" and their commercial collaborators and loss of personal freedom."

Ultimately, for retailers caught in the middle of this battle, Galvin pointed out they should still innovate with payments without abandoning more traditional methods.

"Merchants can partner with a payments provider, like an Independent software vendor or an Independent Sales Organization to deliver innovative payment solutions while still including more traditional methods."