Is Cash Going Away?

The narrative that cash will soon be gone has been going on for at least 30 years. It is a fact that there has been a steady rise in electronic payments. Digital payments are becoming more commonplace, and cryptocurrencies have been all the rage. New technologies like Apple Pay, Google Pay, Android Pay, Samsung Pay are allowing consumers to carry their wallets on their phones. Furthermore, online purchases are on the rise and can only be paid for by electronic payments. These days it is tough to find a merchant that doesn't take credit or debit cards. Even very small merchants have equipment from providers like Square, which allows them to accept payments on their smartphones. Now, as groups of people are trying to settle a bill at a restaurant or office gift-giving, they are using apps like Zelle, Paypal, or Venmo to reimburse each other. The number of people walking around with cash in their pockets seems to be decreasing. With these advances in electronic payments, is cash really going away?

How Cash is Being Used Today

According to the Federal Reserve Bank of San Francisco, Cash continues to be used extensively for small-value purchases, representing nearly half of all payments under $10 and 42 percent of payments less than $25. In contrast, cash is used for approximately 10 percent of payments of $25 and higher. Individuals aged 18 to 25 have the highest share of cash use, 34 percent, followed by those 65 and older who report using cash for 33 percent of payments. The share of cash use is lowest for individuals between the ages of 25 and 44 years old. Additionally, a major factor to consider is that not everyone has a bank account. Even with the convenience of modern banking, there are many that do not have a banking relationship. The Federal Deposit Insurance Corporation (FDIC) reported that nearly 8.4 million U.S. households lacked a traditional bank account and that 6.5 percent of households in the United States were unbanked in 2017. An additional 18.7 percent of U.S. households (24.2 million) were underbanked, meaning that the household had a checking or savings account but also obtained financial products and services outside of the banking system. If you think these statistics from FDIC are hard to believe, look at the number of check-cashing and payday loan businesses concentrated in low-income and minority communities. These are areas where there is a lack of bank or credit union branches and have fewer opportunities for the residents to build a credit history. The simple rule is, if you don’t have good credit, the banks aren’t going to open a checking or a savings account for you.

The Security of Cash

Many people are now switching back to using cash payments as a means of both reducing the risk of identity theft and wanting more privacy. A 2018 report by Javelin Strategy & Research shows that 6.64 % of consumers were victims of identity theft. That is roughly 1 in 16 people. News stories of data security breaches into payment record systems for major retailers have become almost commonplace. There are also frequent reports of gas pumps with skimmers and malware designed to steal your card info. If you paid cash at a retail store, there is zero chance that hacked information could lead to someone on the dark web draining your bank account with that payment information. In the electronic world, criminals can steal money from your account at any time, from anywhere. With cash, you have to be physically present, and the thieves can only steal the amount that you have in your pockets or purse. In regard to privacy, using electronic payments provides details of where you have been. Some transaction recording systems know when you last purchased at their business, or there are some systems that also know what other purchases you made from other merchants using their platform. From a marketing standpoint, businesses use this information to market and sell you more goods and services. Some individuals see this as an invasion of their privacy. Cash, on the other hand, cannot be traced to your last purchase and doesn’t show your purchasing patterns. Some of these platforms sell your information to third-party distributors for advertising purposes. When you pay cash, nobody has to know who you are or where you are.

The Tradition of Cash

Tradition is yet another reason why cash continues to endure. From simple acts like grandma putting a fresh new $20 bill into birthday cards or people that just feel comfortable making small routine purchases with cash. It’s also helpful that when you have cash, you know exactly how much you have available to spend. When buying and selling goods through local classifieds or neighborhood garage sales, you are dealing with people that you do not know. Exchanging cash is a good old fashion dependable way of completing the transaction. Even though they are getting rarer, there are still a number of businesses such as bars, food trucks, and corner stores that are "cash-only." Despite the fact that the physical depositing of cash into a bank account can be a pain, these businesses realize that taking card payments result in paying transaction fees and reducing their overall revenue.

The Bottom Line

The bottom line is that the reports of cash's imminent demise do not coincide with what is happening in the real world. While the world of electronic payments keeps expanding and constantly producing more payment options, there are still sound cases for cash. Cash has been in circulation for several human lifetimes, and if you're a betting person, you probably won't bet on it disappearing any time soon. Cash is still king in the United States, according to the latest data from the Federal Reserve. Until alternatives for cash can solve all the current needs that cash meets, we will continue to see people using cash.