By Currency Research

In order to sell more copy, numerous newspapers seem to regularly send out their reporters to interview the “average” person on the street, seeking to obtain sensational, yet misleading, quotes along the lines of “I don’t even carry cash anymore.” As in the case of New Zealand cited above, this quote would have to come from the 5% of the population who do not carry cash, while conveniently ignoring the 95% who do regularly carry and use cash.

In 2012, the Bank of Canada performed a much more rigorous and methodologically sound survey in order to determine why some shoppers continue to use cash. Unsurprisingly, the final report concluded that, according to the survey findings, consumers simply preferred to use cash:


Recent studies find that cash remains a dominant payment choice for small-value transactions despite the prevalence of alternative means of payment such as debit and credit cards. For policy makers an important question is whether consumers truly prefer using cash or merchants restrict card usage.

Using the Bank of Canada’s 2009 Method of Payment Survey, we estimate a generalized multinomial logit model of payment choices to extract individual heterogeneity (demand-side factors) while controlling for merchants’ acceptance of cards (supply-sidefactors). Based on a counterfactual exercise where we assume universal card acceptance among merchants, we find that some consumers would decrease their cash usage but the magnitude of this decrease is small. Our results imply that the use of cash in small-value transactions is driven mainly by consumers’ preferences. 120

In The Guardian, Stephen Moss advances the argument that cash remains a preferred payment method because it allows consumers to exert more control over their spending habits:


The rise of contactless payments and chip-and-pin has gone into reverse. New figures reveal that more of us prefer to use hard currency – whether because our accounts are empty or because we prefer the security of coins and notes.

According to a new report from the Payments Council and Link, which runs the UK’s cash machines, the volume of cash payments rose by 200m in 2012, reversing the year-on-year decline over the past decade. “Cash is still a vital part of our day-to-day lives,” declares David Hensley, head of cash at the council, with a hint of triumphalism. “More thanhalfofallourpaymentsareincash,reflectingitseasyuseanditswideacceptance.”

The report reckons the recession is a key factor in the surprising comeback of cash. “More people are turning to cash exclusively, possibly to help them monitor the amount they are spending on a day-to-day basis,” it says. “In 2012, 7.2 million adults made all of their day-to-day purchases by cash, an increase of around 700,000 compared with 2011.” That is perhaps the most telling statistic of all: some people are now so broke that they have no reserves to fall back on and are forced to get by day-to-day on whatever cash they have. 121

A Sloan School of Management study confirms this argument, strongly linking the use of cash to fiscal restraint and credit cards to an increase of willingness-to-pay rates:

ALWAYS LEAVE HOME WITHOUT IT: A FURTHER INVESTIGATION OF THE CREDIT-CARD EFFECT ON WILLINGNESS TO PAY In studies involving genuine transactions of potentially high value we show that willingness-to-pay can be increased when customers are instructed to use a credit card rather than cash. The effect may be large (up to 100%) and it appears unlikely that it arises due solely to liquidity constraints.

In summary, this is the first study that demonstrates that willingness-to-pay is increased when customers are instructed to use a credit card rather than cash. The results are surprising both due to the size of the premium and the ubiquity of credit card use. 122

Lastly, we can conclude that in light of the growing threat of data theft, shoppers are turning to cash as a safe and trusted method of payment, as reported below in the New York Times:


A poll released last week by The Associated Press and GfK Public Affairs & Corporate Communications found that 37 percent of Americans had made an effort to use cash instead of credit or debit cards to pay for purchases as a result of the recent data thefts. 123

The Canadian Bankers Association (CBA) favors consumer choice when it comes to preferred payment methods:

Canada benefits from a secure, efficient and innovative payments system built on the foundation of strong financial institutions. Canadians value and trust the payments system which enables them to make the transactions that are part of their daily life. And those transactions are driving the country’s economy.

When making a purchase, consumers can choose to use cash, cheques, debit and credit cards, as well as other electronic payments services like PayPal, e-mail money transfers, bank transfers and soon, mobile payments. Many of these options are available for both in-store or online purchases. 124

As a final word on dispelling the myth that consumers do not like cash, Lauren Saunders, staff attorney for the National Consumer Law Center, advocates below the same position on the issue held by Currency Research: consumers both want and need choice and should not be forced to use electronic payments by policy. CNBC’s Herb Weisbaum reports:

The National Consumer Law Center, an advocacy group for lower-income and other disadvantaged Americans, agrees that it’s important to give people access to electronic payments, so they don’t have to rely on cash. But staff attorney Lauren Saunders isn’t convinced that all the new systems are superior to cash, which is so easy to use.

“Inthefinancialworld,therearecoststoeverything,”Saunderssaid.Thecenterwantspeopletohaveaccesstoboth cash and electronic payments, whatever works for them.

“We shouldn’t discourage cash and push everybody to electronic payments, because a lot of that is being driven by industry looking for ways to get their two cents out of it, to earn fees that you don’t get when people pay with cash,” she said. “Cash is still very useful.” 125

This article has been posted with permission from Currency Research and is excerpted from The Case for Cash Part 1: Myths Dispelled. To request a copy of the full report or to learn more about Currency Research, please click here


Myth: Consumers Don’t Like Cash