'No signs of slowing': The seemingly unstoppable growth of cash

by Colin Gordon, marketing manager, NCR Corp. on ATMmarketplace.com

It seems to be the consensus among certain commentators that cash is on the way out. In a world of contactless payment cards, ubiquitous mobile devices and P2P services, humble notes and coins seem perhaps a bit old-fashioned. But reality does not seem to bear out these beliefs.

This was the headline finding from a recent study by the Federal Reserve Bank of San Francisco, whose main takeaway was clear: To paraphrase Mark Twain, reports of the death of cash have been greatly exaggerated.

Cash use remains strong

One of the challenges in determining the popularity of cash is that there can be several ways to measure its use. Do you look at it by the value of notes printed, the number of transactions or as a payment value percentage? These metrics can give different figures and lead to widely differing impressions of cash use.

For example, studies that look at cash as a percentage of payment value may find more dramatic falls as people favor credit and debit cards for larger purchases. But these will not count the many smaller payments people make every day that they may not even think twice about.

The Fed study opted to look at the total amount of cash in circulation as a proxy for cash use. This covers all cash held by the public, including businesses, banks, and consumers.

The study explained that as people hold on to more cash, central banks will respond by adding more into the banking system, making CIC a useful way to determine people's attitudes toward cash.

The Fed discovered that of the 42 countries that comprise 75 percent of global GDP, 40 experienced an increase in CIC that outpaced GDP. In some cases, including Mexico and South Korea, CIC outpaced GDP by more than 100 percentage points.

Why cash is still popular

The growth of CIC shows that people value cash for two main reasons. The first — its usefulness as a means of payment — is obvious. Cash is easy to use, accepted everywhere and does not come with additional requirements such as access to a bank account or mobile phone.

The second — that cash is also an important store of value — is perhaps more esoteric. People take comfort from having physical assets in hand should they need immediate access to funds.

The study highlighted two key factors that also influence how much cash people hold: income levels and interest rates. As incomes rise, people naturally have more money to spend, which means greater need for cash. At the same time, low interest rates mean there is less value in putting money into saving accounts or other investments, rather than holding it as cash.

The San Francisco reserve board noted: "Very low interest rates in many countries over the past decade has been one factor boosting the demand for cash, as well as uncertainty following the global financial crisis."

What about the outliers?

Only two nations — Norway and Sweden — saw an outright decline in CIC. This should come as no surprise, as these countries are often cited as being among the most advanced on the journey to a cashless society, helped by industry and government policies encouraging digital options.

Norway's largest bank, DNB, estimates that just six percent of citizens use cash on a daily basis, and has therefore eliminated cash in its branches. Sweden, meanwhile, has been heavily encouraging digital and mobile P2P and card payments for decades.

However, these countries are very much the exception to the rule. In fact, the Fed study noted that Sweden has a strong cultural aversion to cash that is not replicated elsewhere. And while other countries have attempted to move away from cash — for instance, Kenya, where 60 percent of people use the M-Pesa mobile money app — this has not brought about a decline in CIC.

As the San Francisco Fed report stated:

A few countries have managed to move away from notes and coins in favor of digital payments. But despite the plethora of digital options, in most countries, demand for notes and coins is strong and shows no signs of slowing down.

In summary, despite the many emerging payment methods that we are seeing increasing globally, the role of cash and the importance of the ATM should not be underestimated.

There are more than 3.2 million ATMs installed globally that dispensed more than $13.6 trillion in cash last year, according to the Retail Banking Research report, Global ATM Market and Forecasts to 2022, which highlights that notes and coins remain important to consumers as part of the payments mix.