Cash is not dead

Contrary to the desires of Visa and PayPal, cash payments remain a vital segment of retail purchases. Although a smaller percentage of transactions than card transactions overall, cash still accounts for $2.2 trillion of the $10 trillion in sales in the U.S., according to L.E.K. Consulting, and are expected to remain so indefinitely.

The amount of cash in circulation is now $1.6 trillion and the Federal Reserve predicts it will continue to grow at the rate of four to six percent per year. And each year, 500,000 ATMs in the U.S. dispense over $10 trillion in cash. This cash is not used to purchase pickup trucks or vacation homes – it is used to buy gasoline, hamburgers and six-packs.

For consumers, cash is attractive because banknotes do not require swiping or a PIN, nor do they require a signature. In addition, dollar bills cannot be hacked, and they leave no footprints. For retailers, cash is attractive because it helps them save money on transaction fees of one to four percent and settlement times of one to four days before they get paid. Plus, there are no chargebacks.

To avoid being charged fees by credit card processors more and more retailers are now offering incentives for cash sales such as discounts of four-to eight-cents per gallon of gasoline. Some retailers are even offering cash discount programs – charging either a three-to five-percent fee on the total sale price or a flat rate transaction fee. For consumers these actions decrease the attractiveness of plastic and mobile-wallet purchases.

 

continue reading »