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Banking

Even in a Digital Age, Cash Remains King

Woman using cashDespite the proliferation of debit cards, consumers still use cash more than any other payment method, especially for small-dollar purchases, according to research by the Federal Reserve’s San Francisco—based Cash Product Office (CPO). Indeed, consumers use cash for half of their transactions of less than $50, says a white paper published April 29 by four CPO officials.

The new paper analyzed the findings of the Diary of Consumer Payment Choice, a study conducted in late 2012 by the San Francisco, Boston and Richmond Feds. CPO researchers found that cash is still popular with people across income and age groups, including younger people. They also found that consumers use cash especially often for certain everyday purchases like food and personal care items. Low-income people are especially heavy cash users, the research shows.

Cash used in 40 percent of transactions
“While debit and credit cards are growing strongly, and cash’s share of total consumer transactions may well be declining, the 2012 Diary results suggest that cash still plays a very significant role in the consumer payments landscape,” wrote Barbara Bennett, Douglas Conover, Shaun O’Brien, and Ross Advincula of the CPO in their paper titled “Cash Continues to Play a Key Role in Consumer Spending: Evidence from the Diary of Consumer Payment Choice.”

On average, consumers used cash in 40 percent of their transactions, followed by debit cards at 25 percent and credit cards at 17 percent, according to the Diary. People use cash mainly for smaller purchases, as currency accounted for only 14 percent of the dollar value of consumer transactions, compared with 18 percent for debit cards, 19 percent for checks, and 27 percent for electronic payment methods such as online banking bill payments and bank account number payments for mortgages, auto loans, and utility bills.

The CPO is responsible for providing strategic and business direction for the Federal Reserve System’s cash operations. The Diary delved into cash demand to better assess future operational needs and involved a sample of 2,500 consumers across various ages, ethnicities, income and education levels, genders, and geographic locations. The Atlanta Fed’s hub for cash operations—the Cash Function Office—is in New Orleans.

May 14, 2014

 

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