Ed Obrien
Ed O'Brien Jan 11, 2018

Cash is sin-king? The evolving state of cash and electronic payments in the U.S.

The ever-shifting mix of cash, checks, ACH and electronic payments methods are now top-of-mind when people discuss today’s in banking—especially as consumers increasingly adopt electronic payments methods in their daily routines. And while demand for cash and cash-like payments instruments remains strong—cash in circulation was estimated at $1.6 trillion in 2016 and continues to grow—so too is the demand for alternative payments methods.

You can find examples of non-cash payments trends and growth from the Federal Reserve Bank of San Francisco reports and the triennial Federal Reserve payments studies. Regarding the former, the 2015 study shows the increased use of non-cash alternative payment methods. 

Still, cash remained the most frequently used retail payment instrument in 2015; it powered nearly one-third (32 percent) of all transactions including bill payments, down from 40 percent in 2012. Consumers used debit cards for 27 percent of their transactions in 2015, followed by credit cards at 21 percent. Electronic payments (such as ACH transfers and online bill pay) and checks comprised a small share of transaction volume, though the value of these payments tended to be higher than cash, debit, or credit payments.

The 2016 Federal Reserve Payment Study also found that households made 78.6 non-cash payments per month on average in 2015, about 95 percent more than the 40.3 noncash payments they made per month in 2000. In total, this corresponds to 117.5 billon consumer payments in 2015 versus 50.7 billion in 2000, a compound annual growth rate (CAGR) of 5.8 percent.  

Shopping and purchasing behavior changes drive these in changes in payments habits. For example, In-person electronic payments via cards represented the most common cash and check replacements over this time. The credit, if you will, goes to merchant acceptance of cards and online banking bill pay solutions that replaced ACH transfers.

Similarly, the Fed study noted that businesses are also changing their payments habits, albeit at a slower pace. Their use of non-cash payment transactions rose from 21.2 billion in 2000 to 26.6 billion, a 1.5 percent CAGR.  Primary reasons included the replacement of checks with ACH payments, and to a lesser extent, increases in card use.  Also, businesses made almost a third (32.8 percent) of their non-cash payments using checks in 2015.

Globally, some countries have accelerated the use of non-cash payment methods. A study by ING Bank found that 34 percent of survey respondents in Europe, and 38 percent in the U.S. said that they would consider going cash-free. 

A recent NBC story noted that Sweden may be cash-free by 2023, as cards, and to a lesser degree mobile apps, continue to grow in popularity.  The story also references research from the Copenhagen School of Economics that reveals an astonishing fact: Although 97 percent of retailers in Sweden accept cash, only 18 percent of transactions involve cash, and the amount of cash in circulation has dropped 40 percent in the past seven years.

This suggests that Swedish cash use will shrink to a negligible amount within six years (though cash will still circulate and stores accept cash for a few years after that). That noted, mobile payments have not taken off thus far. They make up less than one percent of payments—though that percentage should increase rapidly over the next few years as consumers grow more comfortable with the technology.

Still, cash remains important for many U.S. consumers, who use it for roughly half of all transactions valued at less than $50; they also utilize cash more frequently than any other payment instrument, including debit or credit cards.  

The demand for cash and cash-like products will remain strong for quite some time, and the demise of cash in the U.S. will not occur anytime soon. Yet financial institutions and merchants should monitor their customers’ increasing demand for alternative payment options. Readying to meet their evolving and expanded payments needs will lead to a certain payoff, no matter the delivery vehicle.


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Ed O'Brien is director of market analysis and strategy for TimePayment Corporation, a fintech firm with a focus on small business equipment financing and leasing. 

If you enjoyed this article, check out: From customer experience to bank branch significance: Five predictions for 2018 and Getting solid with what’s liquid: Why banks need to revise their corporate liquidity strategy. 

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