Fed Says Cash Is Finally Dying

In its annual analysis of how shoppers are spending their money—literally—the Federal Reserve Bank of Boston’s new report shows a drop in cash usage and a continuation of the popularity of debit cards, although a shift back to credit cards was evident. As it has for years, the study’s thorough analysis of spending examines the most recent year available, which was 2012. The study is dubbed The Survey of Consumer Payment Choice (SCPC).

“After increasing by 28 percent from 2008 to 2010, cash payments by consumers fell back by 10 percent from 2010 to 2012, while the share of cash payments dropped for a third straight year to 26.8 percent,” the report said. “However, the number and dollar value of cash withdrawals and the dollar value of cash holdings by consumers increased in 2012.”

And although debit still reigns, a shift back to credit was also detected.

“Debit cards remained the most popular payment instrument among consumers in 2012, accounting for 29.9 percent of their monthly payments. But credit and charge card payments experienced the largest increase, reaching 21.6 percent share in 2012—surpassing its highest level recorded in the SCPC in 2008. The share of cash transactions, which had jumped 7 percentage points in 2009, has been declining slowly since then to 26.8 percent in 2012,” the report said. “However, the number and dollar value of cash withdrawals, and the dollar value of cash holdings, increased in 2012. Finally, the share of online transactions—both bill and nonbill payments—increased significantly from 2010 to 2012, while the shares of transactions made in person, by mail, or by phone declined.”

Even though cash is starting to recede into history, it is still is the top-number getter, beating (just barely) debit cards.

“The most common payment instrument/transaction type combinations were: cash (8.7 transactions per month), debit cards (8.2), and credit cards (5.6) to pay for retail goods, followed by payments for services using cash (5.6), debit cards (4.7) and credit cards (3.7). The largest numbers of bill payments were made by mail, phone, or in person using check (2.9), cash (2.2) or debit cards (2.2). Among payment instruments, however, debit cards were used to make the most bill payments: 1.7 automatically, 2.3 online, and 2.2 by mail, phone, or in person, for a total of 6.2 debit card bill payments. The average consumer also makes several automatic and online bill payments each month using OBBP and BANP,” the report said. “Of the 68.9 payments the average consumer made in a typical month in 2012, 22.0 were bill payments (31.9 percent of total payments) and 46.9 were nonbill payments (68.1 percent). Among bills, the most common method of payment by consumers was by mail or in person (9.2 per month), followed by discretionary bill payments made online (6.7) and bill payments set up by consumers to be made automatically each month (6.1).”

But if bills are removed from the equation, the picture looks a bit different.

“Approximately 89.4 percent of nonbill consumer payments were made in person, by mail, or by phone. Of these transactions, in a typical month consumers made an average of 24.1 payments for retail goods and 15.4 payments for services while shopping offline, plus another 2.5 payments directly to another person (person-to-person, or P2P). Consumers made an average of 5 nonbill online payments per month,” the report said. “The shares by transaction type changed significantly in 2011 and again in 2012. The share of online transactions—both bill and nonbill—increased over the two-year period, while the share of payments for services and P2P dropped. The share of retail payments did not change significantly during the 2010–12 period. The share of consumer payments for services made by mail, in-person, or by phone declined by 2.8 percentage points and the share of P2P payments declined by 1 percentage point, while the share of consumer payments made online for retail goods and services combined increased by 1 percentage point and the share of online bill payments increased by 1.6 percentage points. Overall, the share of payments made in person, by mail, or by phone declined by 3.1 percentage points, while the share made online increased by 3.1 percentage points.”

Those are a lot of numbers, but where does paper fare overall?

“The share of payments made with paper instruments declined by 2.7 percentage points, while the share made with cards increased by 2.3 percentage points. The 2011 and 2012 decrease in check share was consistent with a longer-term trend decline in consumer check use. Most rates of consumer adoption of payment instruments generally appear to have been stabilizing during recent years. The shares of consumers holding cash, checks, and credit cards have been relatively high and steady for many years,” the report observed. “After a long trend increase, the share of consumers with debit cards appears to be leveling off in the range of 75–80 percent. Although the number of consumer cash payments declined from 2010 to 2012, cash holdings increased moderately. It is therefore not surprising that the average number and the average value of cash withdrawals increased somewhat as well. Consumers withdrew $655 per month on average in 2012, a statistically significant increase from 2010, when they withdrew $468 on average.”

The report also examined nonbank accounts (PayPal, Amazon Payments and others) and found, not surprisingly, that their numbers are increasing rather sharply.

“The adoption of nonbank accounts was 29.7 percent in 2010 and 49.8 percent in 2011. The adoption rate rose to 53.5 percent in 2012. We cannot determine whether the increase in the adoption rate was due to the change in the survey questions or to the increase in the population adoption rate, although it is likely that improved recall contributed to the higher rate of adoption,” the report said. “The vast majority of the nonbank accounts were PayPal accounts: Among the nonbank payment providers, PayPal had the highest rate of adoption, with 45.4 percent of consumers holding a PayPal account in 2011 and 49.0 percent in 2012; Amazon Payments was second, with 17.1 percent and 14.4 percent, respectively.”