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The Resource for the Global Finance Profession

Cash: The Once, Current and Future King, Says Fed

  • By Andrew Deichler
  • Published: 2014-05-05

New data from several Federal Reserve Banks indicates that U.S. consumers still prefer to use cash over any other payment method, including debit and credit cards. In a new report, the Cash Product Office (CPO) of the San Francisco Fed explained that while many electronic payments pundits have been predicting the demise of cash for years, the data tells a different story. According to the Diary of Consumer Payment Choice (DCPC), conducted in October 2012 by the Boston, Richmond, and San Francisco Federal Reserve Banks, cash dominates low-value transactions, is the top payment instrument for many types of purchases, and is the key alternative when other payment options are unavailable.

In October 2012, the average American consumer completed 59 transactions, and 23 of these payments were in cash. At about 40 percent, cash made up the single largest share of consumer transaction activity, followed by debit cards at 25 percent and credit cards at 17 percent. Electronic methods and checks came in at 7 percent each.

However, the CPO’s findings suggest that consumers typically reserve electronic methods and checks for higher-value transactions. Electronic methods make up 27 percent of payments by value and checks make up 19 percent. Cash, meanwhile, only accounts for 14 percent. “The average value of a cash transaction is only $21, compared with $168 for checks and $44 for debit cards,” the report reads.

Nevertheless, consumers complete a lot of low-value cash transactions. About one-third of the average consumer’s monthly payments have a ticket value of less than $10, and cash is used in about two-thirds of these transactions. Consumers typically use cash for half of all of transactions valued at less than $50.

The CPO noted that while the actual number of cash transactions and cash’s share of all transactions decrease as the ticket size rises, the number of card payments remains roughly the same regardless of ticket size. Electronic payments and checks are the top methods for ticket prices over $100 at 30 percent and 20 percent respectively, largely due to their use in bill payments.

Differences with UK

The CPO’s report contrasts dramatically with data also released last week from the UK’s Halifax, a division of the Bank of Scotland. Halifax reported that cash is in decline, representing 17 percent of payment activity, down 1.8 percent from last year. It accounts for about 18 percent of every £100 spent.
Meanwhile, debit cards are now used in 56 percent of UK transactions, Halifax said. For every £100 spent, over a quarter of all payments are made using debit cards, while another quarter are comprised of automated payments. Direct debits make up about 20 percent.

Magnus Carlsson, AFP’s director of treasury and payments, noted that the difference in trends in the two reports may boil down to cultural differences and traditions. “For example, in the UK, checks are not really used at all for personal use anymore while they are still fairly popular in the U.S. for certain transactions,” he said. “Also, as opposed to the UK, many transactions in the U.S. include tipping, which is much easier facilitated with cash.”

Additionally, transactions such as direct debits have been accepted and commonly used in the UK for quite some time, but they have not gained the same acceptance in the U.S., Carlsson added. “One reason for this may be a generally more protective attitude of keeping bank account information private in the U.S., as well as a certain uneasiness about having an external party extracting funds from one’s bank account,” he said.

Copyright © 2015 Association for Financial Professionals, Inc.
All rights reserved.

Copyright © 2015 Association for Financial Professionals, Inc. - All rights reserved.
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