Is Cash Dead?

Bob Legters
Chief Data Officer of Banking and Payments
Posted on December 12, 2013

For over 25 years now, thought-leaders, financial gurus and technology innovators have been predicting the rise of the cashless society. Looking at the evolving progress electronic payments has made over the past few years makes this an even more attractive, albeit romantic notion. It is however, a bit misleading to assume that cash will be eliminated completely, especially in the near future. While it’s true that real-time payments, mobile payments, online consumer transactions, and in-store card transactions are increasing all the time, the notion that cash has outlived its usefulness in this modern world can be easily a misguided one.

In fact, not only is cash NOT dead, it is very much alive and well. According to the Federal Reserve, there is 42% more cash in circulation today than there was five years ago. There are a variety of reasons for this, the primary one being that the economic tailspin of the last few years reawakened in many the desire to have substantial amounts of cash on hand. As the economy continues to return to a more stable state, this drive toward having cash readily available will likely diminish.

According to Federal Reserve analysts, one means of tracking what people are doing with their money is to compare the growth of the economy (using the GDP) with the growth of currency in circulation with face values of $50 or less. Historically, this is the currency that has been most used in day-to-day cash transactions. Up until the mid-90’s, these growth rates ran more or less parallel, sending the clear message that cash was the preferred method of payment. At that point in time, however, the growth rate of the currency began to lag behind the growth rate of the economy, sending another clear message: alternative means of payment were growing while the use of cash was dwindling. As this was happening, the last five years have seen cash holdings nearly triple the economy’s rate of growth, averaging 7.25% over that time. This means that there is $1.1 trillion in circulation today, averaging out to nearly $3,500 per person. Contrast the growth of total currency in circulation with currency in denominations of $50 and smaller, and this tells you that the current currency in circulation is made up predominately of bills with a face value of $100 or higher. Of particular note is that industry analysts believe somewhere between 50-66% of that $1.1 trillion is held overseas.

A recent survey appearing in an Aite Group article entitled, The Less‐Cash Society: Forecasting Cash Usage in the United States, asked U.S. consumers to reveal how they used cash. The answers they got were:

  • 43% used cash to pay for retail purchases.
  • 39% used it in P2P transfers.
  • 18% used it to pay bills.

Another survey in that same article asked participants to reveal how their use of cash changed over a two-year period (2008 – 2010), and these were their responses:

  • 12% use cash significantly more.
  • 9% said they used cash somewhat more.
  • 50% said their use of cash was about the same.
  • 12% used cash somewhat less.
  • 18% used cash significantly less.

When just over 70% of people being surveyed say they use cash either the same or more than they did before, it’s hard to make the case for a cashless society. There is a paradox at work here: although there is more currency in circulation than ever before, alternative forms of payment such as debit cards, credit cards and electronic payments through ACH use have continued to RISE. This is an indication that consumers want to have choices in their wallets.

Of course, determining why and how people use cash is more art than science. It is easy to see why certain industries maintain a cash focus and give the consumer little to no choice, but when consumers are faced with their own choice of cash, check or electronic payment, the logic can be very personal to the consumer. This is when retailers have to make decisions about the choices they want to offer their consumers.

What is known is that there is plenty of cash out there in the world (remember, Federal Reserve analysts estimate that there is $1.1 trillion in circulation). It’s also known that dominant population and economic generations like Baby Boomers hold much of it. This is supported by data from the Live Well Collaborative (, a non-profit founded in 2007 by the University of Cincinnati and Procter and Gamble. Specializing in research and development of products and services for the 50+ market place, the Collaborative estimates the Boomer market consists of 78 million people (an estimated 26.4% of the total population) with a combined buying power in the excess of $2.3 trillion. While that isn’t a strictly cash number, it also estimates that Boomers own 77% of the financial assets in this country, as well as 80% of all the savings accounts in U.S. banks.

While there are many innovators and card networks who are championing mobile payments and other cashless transaction methodologies, the simple truth is this: as long as governments, financial institutions and merchants continue to accept cash, people will continue to use it. That use may decline over time, but declining to the point where cash simply dies of neglect isn’t happening anytime soon. Until an innovative cashless methodology bursts on the scene with such force that it compels a society-wide adoption of that method, cash, and its uses, will go on.

Equipping retailers with the tools needed to accept many forms of payment has been an ongoing challenge for processors and third party providers. Many of the organizations that provide alternative payment tools have integrated the need for cash access into the tools they offer. This allows the retailer, the financial institution and the consumer to all converge into a toolset that gives each the choices they want. Because of that iterative development, debit, credit and prepaid cards all allow for cash access in some way. Seeing these choices take form, we have seen an evolution from cash only; to cash or check; to cash, check or card. Now we are even starting to see a migration to cash or card only and eventually we expect the complete shift to electronic payments only. However, since businesses are reticent to turn away cash-carrying customers and since consumers are not convinced they can access their funds in any situation, there is little hope of seeing a truly cashless society in our lifetime.

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Bob Legters
Chief Data Officer of Banking and Payments

For the past two decades, Bob has focused on products and services support for clients. He has spent 17 of those years in a leadership role with groups ranging from 5 to 200 employees. Bob’s unique experience allows him to efficiently operate at a level that exceeds the normal executive role of understanding and recognizing client and consumer needs in the payments space.