Credit and Debit Cards Gain Ground on Cash for Small Purchases

Cash may still be king among consumers for purchases of $10 or less, but its market share is steadily being eroded by credit and debit cards, says an annual survey from CreditCards.com.

The most recent edition of the survey, released late last week, reveals that 43% of respondents with rewards credit cards prefer to pay for small purchases in cash, down from 45% a year earlier. At the same time, 26% prefer to use their credit card for small purchases, up from 23% in 2018. Additionally, 31% of rewards cardholders say they will use a debit card for a small purchase, up from 30% in 2018. 

New York City-based CreditCards.com, a research and rating service, surveyed more than 2,500 U.S. consumers for its latest study. The firm conducted its first such survey in 2014.

“Since 2014 there has been a steady shift away from cash for small purchases, with credit being the largest beneficiary,” says Ted Rossman, industry analyst at CreditCards.com. “In that time the percentage of respondents using credit cards for small purchases has more than doubled.”

In 2014, 65% of rewards cardholders preferred to pay for small purchases with cash, while 11% preferred to use their credit card and 22% their debit card. From 2014 to 2017, however, CreditCards.com defined small purchases as $5 or less, changing it to $10 or less last year. Nevertheless, Rossman says the data show cash’s slice of small purchases is steadily declining. 

On the controversial issue of cashier-less stores that accept only cards or mobile payments, Rossman believes cash’s shrinking share of low-dollar transactions is unlikely to marginalize consumers who don’t have credit or debit cards, or don’t want to use them for certain types of purchases. 

“Cash may be losing share, but it is not going away,” he says, adding that merchants not accepting cash are the exception, not the rule. Indeed, Amazon.com Inc. is rethinking its stance about not accepting cash at its heretofore cashier-less Amazon Go stores. 

Two potential beneficiaries of consumers’ growing preference for using credit and debit cards for small purchases are contactless cards and mobile payments. Both technologies, Rossman says, can speed payment without compromising the security of the transaction or cardholder data around it.

Lack of awareness, however, remains a significant barrier to increased adoption of mobile and contactless payments. Just 39% of rewards cardholders have made a mobile payment, the survey says, and only 14% of rewards cardholders claimed to have used a contactless card.

Although 10% of rewards cardholders said they had at least one contactless card, 53% said they didn’t own one and 22% weren’t sure if they had one. “While contactless cards are popular abroad, most people in the U.S. are unfamiliar with them,” Rossman says. 

Usage of mobile payments among U.S. consumers, with the exception of Millennials, is less than 50%. Of the Millennials with a rewards card, 61% have used a mobile-payment service, compared to 44% for GenXers and 24% for Baby Boomers. 

One factor that could lift awareness and adoption of both technologies is if they are implemented by more public-transportation authorities, where fast throughput is essential. New York’s Metropolitan Transportation Authority and the Chicago Transit Authority, for example, have already rolled out contactless card terminals for fare payments.

“More cities are working on implementing contactless technology for their transit systems, and as those systems roll out it will increase consumers’ comfort with it, and usage,” says Rossman. “Plus, mobile payments tend to go hand-in-hand with contactless. A rising tide lifts all boats.”