Tenacious Cash Is Here for the Long Term, Report Says

Cash: It’s still everywhere electronic payments want to be. Despite decades of gains by credit and debit cards, electronic commerce, the automated clearing house, and now mobile payments, cash is hanging on and will do so for many years, according to new findings from Aite Group LLC. Consumers spent $1.20 trillion with cash in stores and for person-to-person and bill payments in 2010, Boston-based Aite says.

Cash usage will continue on a long-term downward trend, but payment executives who think cash will follow the manually operated cash register into history any time soon are badly mistaken, according to Ron Shevlin, an Aite senior analyst and author of the report, “The Less-Cash Society: Forecasting Cash Usage in the United States.” The report cites some fairly recent predictions by a prominent economist and a European Visa executive who believed that cash was on its figurative death bed.

Instead, cash is alive, and in some categories still kicking strongly. “I would probably love nothing more than to have forecasted the complete demise of cash by the year 2015 or 2020, but there is just nothing to support that hypothesis,” Shevlin tells Digital Transactions News.

In fact, the supposedly tech-loving youngest adults, the so-called “Gen Yers,” are using cash to a greater degree than their older peers. Some 31% of Gen Y respondents said they used cash somewhat or significantly more in 2010 than they did in 2008. That compares with 23% for Gen Xers, 18% for Baby Boomers and 10% for senior citizens. In addition to being more active financially as they grow into adulthood and thus exposed to more payment forms in general, including cash, many Gen Yers “are the ones who have gotten into trouble with credit cards [and debit card] overdraft fees,” Shevlin says. Gen Yers are now saying that with cash, they can’t spend money they don’t have, he adds.

In all, 50% of respondents said they are using cash to about the same extent they did two years ago while 21% said they were using it more and 30% said less.

The report draws on findings from a July 2010 Aite survey of 4,696 U.S. consumers about bill payments and an October 2010 survey of 3,190 consumers in the U.S., United Kingdom, and Australia about person-to-person payments. It also uses some outside sources such as the Federal Reserve’s payment studies.

Aite broke 2010’s estimated U.S. cash spending of $1.20 trillion into three segments: retail spending, $519.9 billion, or 43%; P2P payments $462.5 billion, 39%; and bill payments, $217.7 billion, 18%.

It’s not that cash usage won’t decline; it’s just that the decline will be nowhere near as spectacular as many payments executives have been hoping. Aite forecasts total cash usage will decline at about a 3% annual rate between 2010 and 2015 to $1.0 trillion, broken into $444.3 billion for retail, $361.3 billion for P2P, and $195 billion for bills. That would represent a switch of $200 billion to other payment forms.

Cash in 2010 accounted for an estimated 53.5% of P2P payments. Aite forecasts cash’s share in that sector will fall to 40.6% by 2015. Respective 2010 and 2015 shares for retail and bill pay are 12.6% and 9.8%, and 5.0% and 3.7%.

Different factors will drive the decline. Payments among family members and gift-giving today account for an estimated 57% of all cash P2P payments. Aite anticipates that more mobile-payments offerings, including those from telecommunications companies and banks, will capture some of the family P2P market from cash.

In retail, online and mobile offerings will cut into cash’s market share, Aite says. Also, cash usage probably has gotten a temporary lift from the weak economy and will recede as conditions improve, Shevlin predicts. And in bill pay, cash payments for rent, taxes, and education will increasingly yield to online services and new electronic-payment offerings, include those from government.