October 10, 2019

Cash in the 21st CenturyTalk About Payments WebinarFederal Reserve Bank of Atlanta

The views expressed in this presentation are those of the speakers and do not necessarily represent the views of any Federal Reserve Bank or of the Federal Reserve System.

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CASH IN THE 21ST CENTURYData from Federal Reserve surveysClaire GreeneShaun O’BrienOz ShyClaire.Greene@atl.frb.org, Shaun.Obrien@sf.frb.org, Oz.Shy@atl.frb.org

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Today’s presenters

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Shaun O’BrienSenior Policy ConsultantFRB San Francisco

Oz ShySenior Policy Advisor & EconomistFRB Atlanta

Claire GreenePayments Risk ExpertFRB Atlanta

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A brief history of cash

• Earliest coins: Lydia (Western Turkey), 7th

century BCE• First paper bills: China, ~800 CE• Europe catches up: Paper money printed in

Sweden, 1661

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Demand for cash continues rise

As of April 2019, U.S. currency in circulation

reached1.68 trillion worldwide

5.4% increase over 20180

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10

15

20

25

30

35

40

45

50

Bill

ions

of N

otes

Number of Notes in Circulation by Denomination

$50 - $100

$10 - $20

$1 - $5

Source: Cash Product Office.

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Consumer’s share of payments made in cash dropped 5 percentage points, 2016–2018

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0%

5%

10%

15%

20%

25%

30%

35%

Cash Debit Credit Electronic Check PrePaid Other

Shares of Payment Instrument Usage, volume, 2016–2018(2018 shaded darkest)

Change in shares is combined effect of decrease in cash payments and increase in card payments (mostly credit)

Source: Diary of Consumer Payment Choice.

Cash share for small-dollar payments dropped 2017-18

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55% 49%32% 33%

36% 40%60% 57%

2017 2018 2017 2018

$0.01-$9.99 $10-$24.99

Volume shares by dollar value

Cash Credit & Debit OtherSource: 2018 Diary of Consumer Payment Choice.

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Cash prefer-ers use cash more than others

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54%

20% 20%

16%

52%

6%

11% 6%

50%

Cash Preferred Debit Preferred Credit Preferred

Payment use (volume shares) by stated preference

Cash Debit Credit OtherSource: 2018 Diary of Consumer Payment Choice.

Preferences shifting away from cash

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26% 22% 22%

41%42% 41%

27% 30% 30%

2016 2017 2018

Shares of consumers preferring each payment instrument

Cash Debit Credit OtherSource: 2018 Diary of Consumer Payment Choice.

Cash switchers lean toward debit

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100%

60% 55%

21% 25%

2016 2017 2018

Of consumers preferring cash in 2016, shares preferring cash in later years

Cash Debit Credit OtherSource: 2018 Diary of Consumer Payment Choice.

Unbanked make most payments with cash; underbanked are similar to banked consumers

Bank account linked56.7%

Bank account linked50.2%

Cash 61.9%

Cash 26.7%Cash 20.1%

Money order 4.7%

Prepaid card 17.2%

Unbanked Underbanked Fully banked

Volume shares of payments, by banking status

Bank account linked Cash Money order Credit card Prepaid card Income deduction

Source: 2018 Diary of Consumer Payment Choice.

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Lower income correlates to cash use, higher incometo credit card use

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38%30% 27% 24% 19% 20%

15%15% 16% 22% 29%

37%

<$25k $25-<$50k $50k-<$75k $75k-<$100k $100k-<$125k $125k+

Volume shares of payments made by income, October 2018

Cash Credit OtherSource: 2018 Diary of Consumer Payment Choice.

Millennials used cash relatively less often than others: ages 24–38 in 2018

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34%18% 19%

27% 31% 33%

Under 25 25 to 34 35 to 44 45 to 54 55 to 64 65 and Older

Volume shares of payments made using cash, by age, October 2018

Cash Other payment instrumentSource: 2018 Diary of Consumer Payment Choice.

Urban households used credit cards more, # of cash transactions similar

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29% 26% 24%

16% 23% 27%

Rural Mixed Urban

Volume shares of payments made by community type, October 2018

Cash Credit OtherSource: 2018 Diary of Consumer Payment Choice.

We mostly get cash from family & friends

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35%

21%

13%

13%

9%

9%

Family or friend

ATM

Employer

Cash back at a retail store

Bank teller

Other

Volume shares of instances of getting cash, 2017

Source: “How Consumers Get Cash: Evidence from a Diary Survey.”

By value, we get 40% of cash on Fridays• On average, consumers get $200 on Fridays

• We get the least cash by value on Sunday

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Source: “How Consumers Get Cash: Evidence from a Diary Survey.”

Mostly, we get cash in multiples of $20

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Source: “How Consumers Get Cash: Evidence from a Diary Survey.”

Cash used for 3/4 of P2P payments;New methods take share from checks

72 74 75

18 14 10

2015 2016 2017

Shares of P2P payments by number

Cash Paper check Cards PayPal Account-to-account transfer OtherSource: Diary of Consumer Payment Choice.

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For in-person payments, Cash is used most

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40%

39%

35%

30%

29%

30%

20%

23%

25%

9%

9%

9%

2016

2017

2018

Shares of in-person payments by number

Cash Debit Credit OtherSource: Diary of Consumer Payment Choice.

Cash used for 1/3 of nonprofits, food, gas

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5%

16%

17%

24%

34%

34%

36%

18%

49%

76%

52%

65%

66%

18%

77%

35%

6%

24%

45%

Housing related

Entertainment and transportation

General merchandise

Medical, education, personal services

Food and personal care supplies

Auto and vehicle related

Government and nonprofit

Payment instrument use by payee type (volume shares), 2018

Cash Card OtherSource: 2018 Diary of Consumer Payment Choice.

Cash used for almost half of small-dollar purchases

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Source: 2018 Diary of Consumer Payment Choice.

49%33%

16% 10% 6%$0.01 - $9.99 $10 - $24.99 $25 - $49.99 $50 - $99.99 $100 +

Volume shares of payments by purchase amount, 2018

Cash Other

What influences the choice to use cash?

<$10

>$10HHI>$110k

HHI<$110k

<$20=$20

<$20Age >$54

Age <54

>$20Age <65

Age >65HHI>$48k

HHI<$48k

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Source: “How Currency Denomination and the ATM Affect the Way We Pay.”

Consumer likely to choose cashConsumer likely to choose creditConsumer likely to choose debit

Behavior differs at the point of sale

When paying in person… choices differ with card ownership

Neither non-prepaid debit nor credit

9/10 purchases in cash

Both non-prepaid debit and credit

1/3 purchases in cash

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Grocery, convenienc

e, pharmacies

27%

Fast-food restaurants,

coffee shops, etc.

22%

General merchandis

e20%

Gas stations

17%

Sit-down restaurants

& bars10%

General services

4%

At left, share of cash payments (volume) by merchant typeSource: “Cashless Stores and Cash Users.”

Cash for paying

Access

“I don't think we will ever be entirely cashless, maybe in large part because I don't know if we will ever be in a world that every person has a smartphone or a mobile device.”

Legislative action

1978 • Massachusetts2019• Philadelphia• New Jersey• San FranciscoProposed• Cash Buyer Discrimination Act

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PayPal CEO, WSJ, 2/20/2018

Cash for emergencies

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Or glitches (September 2019, Harvard Square)

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Or merchant preference (July 2019, Boston)

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• Survey of Consumer Payment Choice, SCPC (2008-2019)• Adoption of deposit accounts and payment instruments• Use (# per month) of payment instruments by 7 payment types• Respondents rate payment instruments on characteristics

• Diary of Consumer Payment Choice, DCPC (2012, 2015-2019)• Use (# and $) of payment instruments for all payment types• Types of payees and consumer expenditures

Surveys of U.S. consumers, 18+

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References and survey dataReferences“2019 Findings from the Diary of Consumer Payment Choice” by Raynil Kumar and Shaun O’Brien, Federal Reserve Bank of San Francisco Fednotes, June 2019.“Cash Me If You Can: The impacts of cashless businesses on retailers, consumers, and cash use” by Claire Wang, Federal Reserve Bank of San Francisco, August 2019.“Cashless Stores and Cash Users” by Oz Shy. Federal Reserve Bank of Atlanta Working Paper 2019-11, May 2019.“Changes in U.S. Consumer Payments” by Shaun O’Brien. Federal Reserve Bank of San Francisco, forthcoming.“How Consumers Get Cash: Evidence from a Diary Survey” by Claire Greene and Oz Shy, Federal Reserve Bank of Atlanta Research Data report 19-01.“How the ATM Affects the Way We Pay,” by Oz Shy Federal Reserve Bank of Atlanta Working Paper 2019-02, February 2019.“Payment Instrument Adoption and Use in the United States, 2009-2013,” by Consumers' Demographic Characteristics” by Sean Connolly and Joanna Stavins Federal Reserve Bank of Boston Research Data Report 15-6.

Kurz, Christopher, Geng Li, and Daniel J. Vine (2018). “Are Millennials Different?,” Finance and Economics Discussion Series 2018-080. Washington: Board of Governors of the Federal Reserve System, https://doi.org/10.17016/FEDS.2018.080.Judson, Ruth (2012). "Crisis and Calm: Demand for U.S. Currency at Home and Abroad from the Fall of the Berlin Wall to 2011," International Finance Discussion Papers 1058. Board of Governors of the Federal Reserve System (U.S.).

Fed consumer surveys• Survey of Consumer Payment Choice• Diary of Consumer Payment Choice• Survey of Consumer Finances• Survey of Household Economics and Decisionmaking• Survey of Consumer Expectations• Consumers & Mobile Financial Services• Federal Reserve Payments Study

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