SAN FRANCISCO—A new study shows that those who think cash is dying—going away like checks due to the growth of debit and credit cards and online commerce—are mistaken.
The report, the Diary of Consumer Payment Choice, commissioned by the San Francisco Federal Reserve Banks, shows that not only is cash a very different payment instrument than checks, but consumers continue to choose to use cash more frequently than any other payment instrument, including debit or credit cards.
“While debit and credit cards are growing strongly, and cash’s share of total consumer transactions may well be declining, the 2012 Diary results suggest that cash still plays a very significant role in the consumer payments landscape,” the report stated.
Cash plays a dominant role for small-value transactions, is the leading payment instrument for many types of purchases, and stands as the key alternative when other options are not available, the report said. Moreover, consumers use cash especially heavily for certain types of everyday expenditures, like food and personal care items. They also rely heavily on cash as their primary back-up payment instrument in situations where their first choice may not be available – P2P transactions are a good example.
By value, cash accounts for a relatively small share of total consumer transaction activity at 14%, while electronic methods make up 27% and checks 19%.
“These findings suggest that although consumers don’t use electronic methods or checks very often, when they do, it tends to be for much higher-value transactions,” the report explained. “In contrast, cash is used quite often, but primarily for low-value transactions. In fact, the average value of a cash transaction is only $21, compared with $168 for checks and $44 for debit cards.”
Consumers have a lot of low-value transactions each month, and typically use cash for these payments. About one-third of the average consumer’s monthly payments involve transactions with a ticket size less than $10, and the average consumer uses cash for two-thirds of these transactions, according to the report. In fact, consumers use cash for half of all of their transactions valued at less than $50.
“In certain cases, including that of mostly lower-income consumers who lack access to alternative payment options or find them too costly or difficult to obtain, cash is also used for relatively larger-value transactions,” the report added.