Clinging to Cash: Latest Data Showing How Cash is Still King

Mark Twain famously said, “The reports of my death have been greatly exaggerated.”  The same could be said, unfortunately, for cash.  Although the death of cash has been discussed for many years and billions have been invested in more modern payment infrastructure and solutions, about 85% of all consumer payments around the world are still conducted in cash.  This post looks at the latest data and some of the reasons why people are still clinging to cash.

Data showing consumers are clinging to cash

People use cash for many different rational and/or irrational reasons.  Traditional economists lead one to believe that consumers are rational utility maximizers; however, the relatively new field of behavioral economics has highlighted the many irrational elements that go into affecting people’s decision-making and behavior.

David Wolman writes about these diverse elements in his 2012 book, entitled “The End of Money:  Counterfeiters, Preachers, Techies and Dreamers—And the Coming Cashless Society.”  Wolman summarizes his book as follows:  “A closer look at the long history of cash, its present-day costs and the flood of emerging technologies suggests that we may very well be on the brink of a monetary revolution.”

The BBC recently wrote “The Truth about the Death of Cash” in which they provide cash usage data and describe how cash is far from disappearing due to rational and irrational reasons:

• In the U.S., cash in circulation grew 42% between 2007 and 2012, and the amount of American money floating around in bills and coins is expected to grow by about 5% each year.
• In the UK, half the transactions by consumers in 2013 were with cash.  The current forecast is that this figure will drop below 50% next year (2016), but there is no prediction for cash to disappear.
• There are now 1,400 supermarkets in the Netherlands that don’t accept cash, so card payments have been growing by 7-8% annually over the past few years.  And yet, cash is still king.  In 2012, there were 2.7 billion card payments, but an estimated 3.5 to 4 billion payments were made with cash.

“Time” magazine also recently published a piece by Bhagwan Chowdry, professor of Finance at UCLA’s Anderson School of Management, entitled “We Still Don’t Have Safe and Reliable Money.”  The author starts by saying:  “They said it was imminent.  They said so two decades ago.  But I am still waiting for a truly fast, reliable and safe form of money for people—all 7 billion of us.”

But cash still has many problems

Although cash is still king, Mr. Chowdry described the most pressing problems of cash:

“Cash is cumbersome to carry and store. It can be stolen and forged, remains un-invested and usually loses purchasing power over time, and cannot be transferred easily across large distances. And so, the pressing need for a digital currency that works.” 

In addition, cash has many hidden costs to a society and a disproportionate cost on poorer people.  Removing this inequity—along with the financial inclusion benefits for billions of people around the world—is reason enough to create innovative digital/mobile payment solutions to lower the use of cash.

Positive signs for less cash in the future

The most encouraging signs for using less cash emanate from Africa.  With the large number of mobile money initiatives in sub-Saharan Africa and, in particular, the success of M-Pesa in Kenya, recently some Mobile Network Operators (MNOs) have struck agreements which should broaden mobile money usage and further decrease dependence on cash.

That said, MUCH more progress is needed.  A new mobile money approach/solution is needed:  one which is more inclusive, technology- and MNO-agnostic, multi-issuer/multi-acquirer, and in compliance with all central bank regulations.

Forward-thinking financial institutions, MNOs and central bankers recognize the importance of innovation around digitizing cash… and creating the next-generation of mobile money—to increase financial inclusion, improve transparency, and reduce inequality.  Yes, cash is still king, but stay tuned in coming years.  Let us know what you think.