Connecting Brands & Consumers

Cash isn’t dead – but its use is evolving

Is cash dead? Should retailers go all in on a cashless society? The answer to those questions depends on who you speak to.

 

The case against cash

The evidence is pretty clear that retail customers have been using more electronic payments and less cash over the years – and the trend has accelerated during COVID.

Research from Mastercard found 50% of all Americans carry less than $20 in cash and 9% report they have stopped carrying cash altogether.

An Australian study conducted by Square in 2021 estimated up to 40% of businesses went cashless during COVID, and one in four Australian businesses have gone cashless permanently. Even buskers are now taking electronic payments.

Image source: Heraldsun.com.au

 

According to the same study, the business sectors with the highest adoption rates of cashless business during the pandemic were retail, charities, and food and drink. Home and repair businesses were most likely to stick with cash.

Of course, the overall growth in e-commerce and mobile payments (both tripling over a 10-year period) has been fuelled by the pandemic, since you can’t use cash for online transactions.

Although the cashless trend grew during the pandemic, the use of cash has been stagnant or declining for a long time while other payment options have grown dramatically.

Debit card transactions in Australia have quadrupled since 2010, according to the Reserve Bank and the Australian Banking Association. Monthly withdrawals from ATMs peaked at $13.8 billion in 2008, dropping to less than half that during 2020, while bouncing back to nearly $9 billion a month in 2021.

Alongside credit and debit cards, which have been chipping away at cash payments over a few decades, electronic transfers, PayPal, phone payments such as Apple Pay, buy-now-pay-later apps, cryptocurrency have all popped up in the past few years to give customers more and more options for payment – and more headaches for retailers as they have to accommodate more and more methods.

A 2022 report from futurists McCrindle has declared that even the elderly have embraced cashless payments, citing simplicity of purchase as the key reason for using cash less often. PayPal research revealed that nine in 10 shoppers over the age of 55 plan to shop using their smartphones, either the same amount or more than shoppers aged 16 to 24.

Two different reports from fintech companies FIS and bambora both predicted that Australia will go cashless by 2024, although they do not explain exactly what that will look like – the FIS report, for example, predicted that 2% of in-store transactions will still be in cash, which doesn’t exactly sound like cashless!

 

Reports of cash death ‘highly exaggerated’

However, that doesn’t mean people have stopped using cash altogether.

In several US cities including San Francisco, Philadelphia and New York, legislation has been passed that require businesses to accept cash.

In Australia, there is actually 25% more cash in circulation now than there was before the pandemic – $100 billion compared to $80 billion.

According to the RBA, this is largely due to the ‘money under the mattress’ effect, where people take their money out of the bank during a crisis and hang on to it, sometimes literally stuffing it under a mattress. Popularised during the Great Depression, this practice was also popular during the global financial crisis in 2008.

The most common note being hoarded is the $100 note (Who can remember the last time they handled one?). In the current low-interest environment, the cost of holding on to your money rather than having it in a bank is negligible, though it will be interesting to see what happens as interest rates rise.

At the other end of the currency spectrum, the Royal Australian Mint has reported that demand for coins plummeted in the five years leading up to the pandemic, but that demand increased during 2020, citing the same reasons as the RBA did regarding notes. Despite this, the Mint is predicting that 5 and 10 cent coins will be phased out over the next 10 years.

Despite the predicted demise of small coinage, the Mint’s CEO Leigh Gordon told the ABC that, “I think cash will be part of the mix for a long time to come. I certainly wouldn’t be brave enough to predict a future where there is no cash.”

 

Caveat – consider the source

The debate over whether or not we’re headed for a cashless society appears to be conducted the loudest by players who have skin in the game.

Nearly all of the reports predicting the death of cash have been produced by electronic payment companies and retail banks, which have a vested interest in the move away from cash.

They cite statistics showing that customers who use methods other than cash tend to spend more per transaction, that administration is easier for businesses, cash register theft is reduced, and that transaction time is reduced (which would be disputed by people paying by phone with a mask on!). They also correctly cite the risk management aspect of using multi-bank connectivity, including least-cost routing that allows retailers to choose the cheapest options for debit transaction processing.

On the other side there are websites like Cashless Economy (cashless-economy.com), which is filled with articles and reports of ‘academic studies’ stating that the main beneficiaries of a cashless society are criminals and tax dodgers. It’s not obvious who is funding the website, but on its footer it states that the site is “edited by individuals and civil society groups fully committed to defending privacy and civil liberties against abuse and the risks inherent in a cashless society.”

A similar website, Cash Matters (cashmatters.org), states that it represents a “civil society movement that is funded by the International Currency Association (ICA), that channels voices that support the existence and relevance of cash as an integral part of the payment landscape now and in future.” The ICA appears to be funded by ATM, printing and transaction trade groups based in Europe.

These groups emphasise that cash is democratic and promotes personal independence, freedom and privacy, as well as helping to foster national identity.

Both sides in the debate accuse the other of promoting criminal elements. As Andy Serwer from Yahoo Finance writes, they both have a point. “Criminals of all stripes use many types of money and payments, but it’s interesting the bad guys now seem to use both the oldest, (i.e. cash), and the newest (crypto) forms as their preferred vehicles these days. The common denominator of course is both are difficult to track. Curbing their behavior would require more regulatory oversight,” which, he points out, is not a popular option in most Western countries at present.

 

Why does it matter?

Every time that a new technology arrives, experts line up to predict that it will kill off old ones. Movies were supposed to kill off books, then radio was going to kill off cinema, TV was going to kill off both of them, and the Internet and streaming technology was going to kill everything. Meanwhile, ebooks were going to kill off books, which were still alive and kicking despite all of the technologies that came after them. Instead, books, movies, radio, TV, video streaming, ebooks and the multiverse are all co-existing, with old ones making room for the new players.

Similarly, credit cards, debit cards, electronic transfers, PayPal, pay by phone, buy-now-pay-later, cryptocurrency, etc. all co-exist alongside the continuing use of cash. The fact is that we just make room for all of these ways of doing things.

Although most of the drum-beating about the cashless society comes from players in the electronic payment space, not everyone in that sector is predicting the death of cash. Alison Sagar, marketing director and head of consumer at PayPal UK, suggested in an interview with Marketing Week that businesses should continue to accept all forms of payment.

“The speed, ease and security of digital payments benefits everybody, regardless of their age. Our advice to businesses is clear – it’s not about committing to cash-only or cashless, but about offering as many methods of payment as possible to make life easier for customers.”

So is cash dead? No, but its role in our economy and payment systems has changed dramatically in the past few years and its critical nature has been usurped by digital payment options. Is it going to die? Probably not, though more and more people will conduct their lives without using any cash. But keeping cash as an option will continue to make sense for businesses, particularly retailers.

 

Ray Welling, PhD is a writer, lecturer and podcaster specialising in digital marketing and communications. He is the author of Digital Disruption and Transformation: Lessons from History, a retrospective on technology and marketing during the first decades of the Internet in Australia.