Understanding cash in the retail payments mix
Credit unions have access to an enormous trove of analytical inputs that can help them better understand their own members’ purchasing behaviors. After all, we need only crunch checking account, debit card and credit card activity to see members’ monthly bill payment patterns and a large chunk of members’ retail purchasing behaviors. However, we are still missing cash.
Since cash is still used for almost all purchases under $2 and approximately half of all purchases under $50, clearly, there is an entire world of members’ commercial behavior that is largely invisible to credit unions.
Having access to actual consumer payments activities at a retailer is enormously helpful to credit unions looking to better understand how their members use cash or plastic in their own geographical footprint, the timeframes during which those members make larger ticket purchases and how payment method preferences change over time.
PSCU is leveraging recent research from the Federal Reserve Bank of Richmond that tracks actual transaction level data of billions of transactions at the thousands of locations of a national discount retailer. The two tranches of research have examined five years of activity (2010 to 2015). Here are the key findings:
- Your realtor was right – location is everything. While there was almost no variation in the use of cash for purchases under $2, there was significant variation in the use of cash for larger purchases. For transactions over $50, cash use ranged from 30 percent at one location to over 55 percent at another.
One of the findings is that consumers in rural zip codes were less likely to use cash if a financial institution’s branch was near by (they found it easy to make deposits and then to access funds via a debit card). The consumers most likely to use cash were urban and suburban and living in branch- and ATM-rich neighborhoods. The researchers determined that having ready access to ATMs made it easier to always have cash on hand and to use cash even for more expensive purchases.
For credit unions, the problems with cash are that it doesn’t provide transaction level data that can be used to enhance relationships with members, it does not generate interchange and most importantly, it provides absolutely no protections for members against loss or theft of their funds. It’s incumbent on credit unions to create and communicate a narrative emphasizing the value and safety of debit transactions if the retail financial services system is to supplant cash at POS.
Days of the week have a huge impact on the amount of money consumers spend during shopping trips. Researchers found that consumers were least likely to spend $50 or more on Sunday, Monday and Tuesday and were 40 percent more likely to spend that amount on Friday and Saturday.
- Days of the month also impact spending patterns, with larger dollar purchasing concentrated towards the beginning of the month. The slowest days for larger ticket purchasing are the last five to six days of the month, and the difference between the most and the least active days for those purchases over $50 is greater than 50 percent.
The overlay of these two calendar trends is that the first Friday and Saturday of every month are the most popular days for spending on larger purchases, while the last Monday and Tuesday of a month have the lowest spending activity.
Bottom line? Fintech and banks are not credit unions’ only competitors. Cash remains the largest payments competitor credit unions have for purchases under $50. While there has been a payments system migration from cash to debit (that rate is approximately 3 percent a year), cash is still used for 70 percent of smaller dollar transactions (at the retailer studied by the Richmond Fed economists), which means credit unions still have an enormous opportunity to move cash transactions to debit. Emphasizing the ubiquity of debit card acceptance, debit rewards and the safety and security of debit cards and debit transactions remain key to payment strategies.
