Take On Payments, a blog sponsored by the Retail Payments Risk Forum of the Federal Reserve Bank of Atlanta, is intended to foster dialogue on emerging risks in retail payment systems and enhance collaborative efforts to improve risk detection and mitigation. We encourage your active participation in Take on Payments and look forward to collaborating with you.
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October 19, 2015
The governments in countries such as Sweden and Nigeria may have taken initial steps to move to a "cashless" nation, but here in the United States, there is no question that cash is still king. It remains the most-used retail payment instrument, especially for low-value payments. This finding from the Fed's Cash Product Office (CPO) was welcome news to a group of independent (nonfinancial institution) ATM operators that I had the pleasure of addressing last month at their annual conference. The primary business of these entrepreneurs is getting cash into the hands of consumers through their terminals located in a variety of malls and merchandise, food, and beverage stores. Of the estimated 400,000–425, 000 ATMs and cash dispensers operating in the United States, approximately 60 percent are owned by these nonfinancial institutions.
One of the CPO's main missions is maintaining a supply of currency and coin to meet demand in both normal times and special situations such as natural disasters, when other forms of payment might be unavailable. As a critical part of accomplishing that mission, the CPO constantly evaluates research to determine how cash use is changing in this country. One of the main sources of research is the Fed's Diary of Consumer Payment Choice (DCPC). Data collection was last fielded in 2012, but is being conducted again now. To collect the data, the DCPC asks a representative national sample of about 2,500 individuals to record all their financial transactions over a rolling three-day period. In addition to recording the transaction and demographic information, respondents were also asked to indicate their top preferred payment method and their second preferred method of payment in instances when their top choice is not available.
Some of the major findings of that study include:
- Debit and credit cards represent the stated primary payment choice, at 64 percent, but 30 percent of the consumers stated their primary payment preference was cash.
- Cash serves as the backup payment method for all segments, reflecting its importance in our overall payment infrastructure.
- Interestingly, although 3 percent of the consumers said their preferred payment method was checks, they actually used cash twice as often as writing checks.
- Reflecting the tendency for people to use cash for small-value payments, cash payments represented 40 percent of the number of payments made by the survey participants but only 14 percent of the total value of the payments.
- Cash clearly dominates the small-value segment under $10.
- Cash was the payment method used in two-thirds of person-to-person (P2P) payments.
- The use of cash in P2P transactions is different from other cash transactions; P2P transactions are two-thirds higher in value ($35 versus $21) than other types of expenditures.
- While 51 percent of the adults in the 18–34-year-old age group indicated that debit cards are their most preferred payment method, cash followed closely at 40 percent for the 18–24 year olds and 31 percent for the 25–34 age groups. Will the 2015 results show a departure from this finding?
It is clear that the United States is a long way from becoming a cashless society despite the predictions of many over the last twenty years. The 2015 results will provide important information as to how cash continues to be used by the general population and the emerging millennials segment in particular.
So is there cash in your wallet? I bet there is and will be for quite some time.
By David Lott, a payments risk expert in the Retail Payments Risk Forum at the Atlanta Fed
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