As technology has rapidly progressed in recent years, many once popular items, devices, and facets of daily life have faded into obsolescence. With nearly everyone owning a smartphone, everything from physical maps to CDs have become increasingly less common.
To many commentators in the payments industry, cash is next on the chopping block of technological progress. Their thinking is that with the proliferation of alternative payment methods and the ongoing pandemic, consumers will finally abandon paper money once and for all.
In an executive brief, Sarah Grotta, Mercator Advisory Group’s Director of Debit and Alternative Products Advisory Service, offered her take on the longevity of cash and whether we’re poised to become a cashless society.
Consumers’ relationship with cash—it’s complicated
Many experts in the payments industry have been focused on creating a cashless society by displacing paper currency with electronic payment methods, which they argue are safer, quicker, and more reliable ways to transact. However, Grotta explained that this may be a misguided pursuit.
“Consumers have kind of a complicated relationship with cash,” said Grotta. Although many consumers have embraced new payment technologies, cash remains popular for a large portion of the population. “There’s just a ton of people who find cash entirely convenient for them and, in some ways, safer than other forms of payment, particularly online and mobile payments,” she added.
But transitioning entirely to a cashless society wouldn’t just inconvenience those who still prefer cash; it could economically disenfranchise a significant portion of the population. Nearly 14.1 million American adults are unbanked, according to a recent survey from the Federal Deposit Insurance Corporation (FDIC). And lacking a bank account, these people primarily use cash to conduct their daily affairs.
“I think that those who are really pushing the cashless society are sometimes forgetting about the fact that as we move towards a cashless society, you could be, in fact, disenfranchising a certain percentage of the population,” said Grotta.
Cash, COVID, and contactless
The pandemic has caused many to predict that cash will be replaced even quicker than before, as consumers flock towards contactless payment methods to avoid handling germ-laden paper bills. But, “I don’t necessarily see that as the case,” said Grotta, noting that Mercator’s survey work paints a more nuanced picture.
While 19% of consumers reported that they withdraw cash from an ATM less frequently since the pandemic began, a comparable 17% of consumers reported withdrawing cash more frequently and 47% reported no change, according to Mercator’s data. “People run out and get cash because they feel very comfortable with that,” explained Grotta.
However, other payment methods have seen increased adoption. “We did see some growth in contactless cards, and certainly we’re seeing a growth in P2P applications,” said Grotta. From her perspective, cash will continue to slowly decline in popularity, but it will not go away completely.
Instead of focusing on creating a cashless society, people should focus on “creating the products and services that are perhaps better than cash. And consumers will naturally segue to those better solutions,” said Grotta, adding that, “if you take a look back at 100 plus years of payment history, we never truly get rid of any type of payment transaction, we just add new ones.”