Banknotes, euros, rupees, dollars, rubles—and the various names of cash—aren’t things of the past, even in an increasingly digital world. Yet, understanding cash trends isn’t so simple. Take India for example. Since 2016 there's been a push by the government for citizens to embrace digital transactions and move away from cash.
Yet, use of cash has increased in India, even as digital payments increased. In fact, RBR believes Indian demand for cash will grow 23 percent by 2025, with the value of cash withdrawals hitting a massive $1.2 trillion (an increase of 65 percent from 2019 transaction values) as FIs push out into un- and under-banked rural areas.
This dynamic between the increase in digital payments and what it means for cash is happening in most countries; some exceptions are Sweden and China, where digital payments already make up the majority of purchases. And the notion of a cashless society has been talked about for decades, but, for many reasons, cash remains an essential part of most countries’ economies and their consumers’ lives—even as digital payments gain ground.
What we're seeing is cash trends changing, amplified by the pandemic over the last 12 months. For instance, cash withdrawals at the ATM dropped significantly—with the UK seeing a 60 percent drop during its first lockdown. But while transaction levels dropped, the value of each transaction increased. And the amount of cash in circulation was also up—UK ATMs still saw 1.6 billion cash withdrawals in 2020, totaling more than £80 billion.
Every country has different cash trends as well as some similarities. Let's take a closer look at some of the.
Japan: Although the country’s neighbors have been jumping on the digital bandwagon for years and Japan is the number one technologically advanced country in the world, cash remains a big part of Japanese society for many reasons. In fact, the use of cash in Japan reveals some of the country’s interesting cultural and lifestyle trends.
For example, there’s the common use of Tansu Yokin—the Japanese widespread practice of keeping large amounts of cash in dresser drawers. You might think that sounds like a great way to get someone to break into your home, but that reveals something else about Japan—it’s safe.
It’s not uncommon for someone to carry large amounts of yen in their wallets and if they lose it, it’s often returned with the money untouched. And with large amounts of small, family-owned businesses that rely on cash plus natural disasters that have knocked out power making people wary of digital payments, it’s easy to see why cash is still so important to the Japanese way of life.
Germany: Like Japan, Germany is also one of the world’s most technologically advanced countries (number five) and the love for cash payments has traditionally been strong. As reported by Worklife, many Germans place a high level of importance on the “concrete” versus the “abstract.”
Worklife interviewed Robert Muschalla, a German historian, who explained that “this ideology emerged in the late 18th Century, when Germans were socialized to prioritize a tangible result from their labor over more abstract forms of exchange, such as IOUs, as the economy evolved.” That's translated into Germans distrusting card payments for fear it would lead to overspending.
But payments are also changing in Germany. While many small restaurants and shops are still cash only, younger generations say they prefer digital payments and we could see this balance shifting even more in coming years.
Other European countries: In 2019, Statista published a chart demonstrating which European countries used the most cash. Greece topped the list of “households using cash at point of sales” at 88 percent with Spain closely behind at 87 percent and Italy at 86 percent.
The three at the bottom were Sweden at 15 percent, Denmark at 23 percent and the U.K at 34 percent. How those numbers change after the pandemic will be interesting—but we should expect the convenience offered by digital or contactless payments will lead to some decline in cash use.
The United States: Many Americans still use cash, although most use credit and debit cards more to pay for things like groceries. According to the Federal Reserve, currency in circulation is increasing at a rate not seen for over 70 years with $2.07 trillion USD in circulation.
GoBankingRates surveyed 1,000 U.S. consumers about their payment preferences, including cash. Of those surveyed, 37 percent said they prefer cash to any other forms of payment. And of those who said they prefer cash, 39 percent said it was to prevent overspending and 34 percent said they saw it as a safer way to pay (less chance of fraud compared to digital payments).
While Americans prefer cash over digital payments, the pandemic is changing that and after it ends, those new digital payment users say they aren’t going to stop using them.
South Africa: While cash is still king in South Africa, digital is gaining ground. Mobile payments are becoming much more common and Apple Pay is signaling that it’s interested in entering the country’s market. Still, cash is a trusted and recognizable form of payment particularly for older generations and for people who own and operate small markets so the country’s large 50 percent cash use isn’t likely to change significantly for some time.
Financial institutions (FIs) are in a unique position as consumer demand for digital-first payments and the convenience they bring has increased substantially. But consumers still want access to cash, just as fast and safely, too.
So, which is more important for a bank or credit union: cash or digital? Neither wins that award. During the pandemic, FIs have had to quickly pivot both their cash management operations as well as upping their digital game to enable consumers to access more banking services via their own devices.
The need to get a handle on the digital-first world, which began before the pandemic, has seriously accelerated and is now a top priority for FIs. And for many, the benefits of going with Payments as a Service (PaaS)—a cloud-based software solution—has been crucial to keep up with their customers' digital demands.
PaaS offers the flexibility and the agility that outdated siloed systems simply don’t have. That makes it much easier for FIs to adopt new technology that allows them to accept their customers digital payments and sets them up for quick pivots in the future, as needed. It’s been an IT time saver and ultimately a cost saver for FIs, too, as they meet the demands of their consumers digital-first banking needs.
For cash, it’s largely about not running out of it at the ATM. The reason for that is clear: Every year consumers withdraw over $12.6 trillion USD from 3.1 million ATMs globally. That equals to cash withdrawals of $400,000 every second. FIs also have ATM digital-first considerations, like enabling their customers to gain access to their ATMs without having to touch a button—whether that’s using contactless payments, pre-staged transactions or voice activated ATMs.
And the costs of handling cash at the branch can be a large burden for FIs, which is why cash recyclers are on the rise.
Investing in cash recycling ATMs is a rapidly growing trend around the world. It's easy to see why: they deliver massive benefits to FIs by simply automating cash withdrawals and deposits.
One of the greatest advantages of cash recycling ATMs is they reduce costs, particularly when it comes to the costs associated with cash in transit (CIT) management, by reducing fulfilment cycles. What’s more, the labor it takes to manage cash at the branch can be significantly reduced as the ATM will automate some of the processes, like counting, recounting and reconciliation.
And when it comes to making replenishments, cash recycling ATMs reduce how often FIs need to make them, which is also a way to save on costs. Also, when an FI’s staff doesn’t have to handle and process cash, they’re able to focus on providing better customer service and help generate more revenue.
When you combine cash recycling ATMs with cash management software, FIs can increase costs savings even further—by up to another 20 percent. With that combination, the ATM Industry Association (ATMIA) estimates that FIs can save from $3,000 to $10,000 at each branch.
That’s because an integrated cash management software solution delivers flexibility and visibility so FIs can gain insights into how customers are interacting with ATMs—so they can track and anticipate how often they make deposits and withdrawals.
While it’s difficult to predict the future trends of cash use, one thing is certain: It will always have a part to play. But there's a lot of change taking place in the payment world. Cash (less frequently, but in larger amounts), mobile, contactless and digital payments, peer-to-peer payments and more—are giving consumers a lot of options, and many of them are right at their fingertips. To stay competitive, FIs have no choice but to keep up with, and stay ahead of, all the disruption.