In the financial world the term “cash is king” means that it is superior to other means of payment. But in a world filled with alternatives such as credit cards, digital wallets and digital banking, does this adage still hold true?
The answer depends on who you ask. Consider this: It’s been 5,000 years since the Mesopotamian people created the shekel, which is thought to be the first known form of currency. Yet today, we still use currency that we can hold in our hands and jingle in our pockets.
On the other hand, more than four out of five Americans (82%) used some form of digital payment in 2021, according to McKinsey’s 2021 Digital Payments Consumer Survey. That was up from 78% the year before and 72% five years earlier.
Mila Garcia, co-founder of iPaydayLoans in Kirkland, Wash., points out that with the rise of cryptocurrencies, digital wallets and peer-to-peer payment apps “cash is undoubtedly becoming used less and less, especially among the younger, more tech-savvy generation.” And yet, “Cash has always remained relevant, and this mostly comes down to the fact that there is still an entire tax-less economy out there that heavily depends on cash moving around without trace,” says Garcia.
The COVID-19 pandemic has, in part, led to the surge in popularity of digital currency as people social distanced and self-isolated. Businesses from grocery stores to veterinary offices made it easier to shop or get the services they had traditionally obtained in person. According to a recent report by analyst firm eMarketer, in-store mobile payments use grew 29% in the U.S. in 2020.
As of 2020, only 16% of consumers now carry cash and 58% plan to stop using it completely, according to a survey conducted by Travis Credit Union. Smaller purchases and emergencies were the top two reasons people continued to carry cash.
Cash’s Death Knell Hasn’t Rung … Yet
Still, in a world that seems to progress at warp speed, cash continues to have a good track record. In fact, according to the U.S. Federal Reserve, as of Dec. 31, 2020, there was $2,040.7 billion in circulation. There’s also still enough confidence in the U.S. dollar that other countries use it as a reserve currency to back up their own currency’s value. Since 1944, the U.S. dollar has been the primary reserve currency used by other countries.
Cris Carillo
Why cash has had such staying power depends on with whom you speak. Cris Carillo, co-founder of Allied Payment, an online payment processing company in Marco Island, says that even though electronic payments account for about 80% of today’s transactions, the likelihood of cash disappearing completely is minimal, particularly among those who are considered underbanked or unbanked.
“For most of these people, cash remains essential for day-to-day activities,” says Carillo. In addition, many cashless transactions require the ability to use digital payment apps, which not everyone can afford, or can use, adds Josh Emison, CEO and a cofounder of Sansbank, an alternative lending platform for real estate investors in Los Angeles.
Although the younger generation has embraced the digital currency trend, many older Americans have not.
“To replace physical money, everyone in the country would have to be digitally savvy enough to use the electronic alternatives, which means cash isn’t going away any time soon,” says Emison.
And, unlike electronic systems physical money is reliable and untraceable.
“There is a huge demand among Americans to have a way to transact in certain ways without being tracked… many Americans still rely on cash to maintain their privacy,” Emison says.
But can that desire to remain untraceable continue to be fulfilled as the world becomes more and more electronically connected? In their paper “Privacy as a Public Good: A Case for Electronic Cash” authors Rodney J. Garratt and Maarten R. C. van Oordt point out that going forward “transaction privacy may no longer be attainable due to steadily growing market shares of commercial payments platforms that generate datasets with payment histories at the user level.”
Simon Furlong
It’s not just consumers who are turning away from cash. Some businesses, particularly since the pandemic, are saying no to Abe, George and Benjamin. While there is no federal law requiring businesses to take cash, some states including New York, New Jersey, Massachusetts and Rhode Island have passed laws preventing them from doing so.
Excluding people from paying cash can be viewed as discriminatory, particularly among the low-income, undocumented and homeless. Also, some businesses prefer cash because there are no fees attached. And while credit cards and digital currency can fail, cash is always going to be reliable.
Simon Furlong, co-founder of Geode Finance, based in the British Virgin Islands, says there will always be some who feel better having tangible notes or coins stored somewhere (think Grandma’s freezer). Plus, he points out there is such a large infrastructure built around cash.
“Counting machines, safes, armored car transportation — too many jobs and too much wealth is created around the existence of cash for it to simply disappear,” says Furlong. “For now, at least, cash in the sense of government-issued fiat is certainly not going anywhere soon. While paper notes are becoming less relevant, we still have a long way to go before we see physical currencies go the way of the dinosaur.”
Not Chump Change
According to a recent report by analyst firm eMarketer, in-store mobile payments use grew 29% in the U.S. in 2020.
PayPal is one of the biggest online payment platforms available in the industry. It supports 100 different currencies, helping people all around the world pay and get paid. According to Statista, a market and consumer data company, PayPal added 67 million people to its user base in the span of a year, reaching 392 million active users in the first quarter of 2021 — which is 15 million more than the previous quarter.
By comparison, Venmo, which joined the PayPal family in 2012, processed $230 billion in total payment volume in 2021, a 44% increase from the previous year. An estimated 70 million people use the platform.
Another platform, Zelle®, has seen phenomenal growth since it was launched in 2017 to become the largest U.S. P2P payments network by total payments sent, according to a company press release. Zelle® has become popular with small business owners. “In 2021, payments received by small businesses increased 162% over the previous year’s totals. Fortune 500 companies, universities, and national nonprofits also turned to Zelle® when disbursing funds to the public as a fast and safe alternative to sending checks,” according to the release.
Apple Pay, Samsung Pay and Google Pay are some of the top digital wallet services. Apple Pay is the dominant player with 43.9 million users in 2021 and is projected to add 14.4 million users between 2020 and 2025, according to eMarketer. Google Pay is projected to add 10.2 million users by 2025 while Samsung Pay’s growth is expected to be stagnant, growing by just two million users in the same time period.