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Cash is half of the US payments pie
Those who prefer cash use cash. Those who prefer cards use cash. In short, everyone uses cash, according to the new Fed study 'Consumer Preferences and the Use of Cash.'
July 29, 2014 by atm Atom — blogger, atmatom
Those who prefer cash use cash. Those who prefer credit and debit use cash. Everyone uses cash, according to the June Federal Reserve Bank study "Consumer Preferences and the Use of Cash."
While compiling data from two studies with a combined 5,644 participants, the Federal Reserve draws a number of interesting conclusions that would seem to bode well for the ATM industry.
The explosion in debit and credit card use has had no impact on the use of cash
Between 2000 and 2012, the combined number of debit and credit transactions increased from 24 billion to 73 billion annual transactions. In addition, only 30 percent of U.S. customers now say that they prefer to pay in cash.
But despite an explosion in card payments and an increasing affinity for card use, the Federal Reserve study revealed that cash transactions still outnumber debit and credit transactions combined.
Everyone uses cash
Nearly 60 percent of all purchases of less than $25 were made with cash. Not surprisingly, this percentage declined as the average purchase size increased.
People who express a preference for cash tend to use cash for a majority of purchases up to $75. For those with a card bias, cash is used more often than cards for purchases up to $9. Given that the average purchase made by participants in the studies was $14, cash was the dominant payment method.
The spending category really matters
It doesn't come as a surprise that housing, government and nonprofit payments are made through non-cash methods — check or credit card.
The highest use of cash falls in the categories of food and personal care supplies, and gifts and transfers to people. It is the food and personal care category that may be of most interest to ISOs, as many retail ATMs are found in locations supplying these needs.
ATMs are also, I'm told, ubiquitous in locations with a high volume of gifts and transfers to people — more good news for ISOs. The continued high use of cash in these categories validates the need for an ATM in most merchant locations.
Younger people are more likely to use more cash. This might seem logical, given that people in their twenties and thirties normally don't have an extensive credit history or high net worth.
The Federal Reserve study confirmed that a preference for cards did increase along with age and net worth. Older Americans might also feel that the use of cash for purchases in any significant amount might make them crime targets.
But what if these trends don't continue? High debt levels and low employment opportunities both remain problems for younger Americans. If these millennials and Gen Xers don't reach or exceed their own parents' standard of living, will an overall preference for cash persist into middle age?
Debit and credit are not complements
In what is perhaps the most surprising finding from the Federal Reserve study, debit lovers use credit cards less than 7 percent of the time and credit lovers use debit around 4 percent of the time. However, both groups use cash more than 50 percent of the time for purchases of less than $10.
Further, total card preference rates increase with income, while credit preference rates increase with education (and income). This would seem to indicate an age-education-income continuum that starts with cash and migrates to debit before settling on credit.
This is intuitive but leaves much of the less educated and less affluent segments of the population both unbanked and with only prepaid as an alternative to cash. The adoption of credit-and-PIN in the U.S. as part of the migration to EMV and a rise in the use of prepaid cards among the unbanked could both open up whole new segments of potential ATM customers for ISOs.
Based on the Federal Reserve study, cash continues to garner a near 50 percent dominance as the preferred payment method in most transactions. It appears that checks, credit, debit, prepaid and other electronic payments are battling it out for the other half of the pie.
This article has been republished from the Triton Systems blog, atmAToM, with kind permission from Triton.
photo courtesy of mazaletel | flickr
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