By : Robert Johnston
July 09, 2014 11:33 AM
A plethora of payment channels now exist. We can pay for things with credit, debit and prepaid cards. We can still write checks or we can tap-and-go with a contactless card. Mobile wallets are growing all the time and Bitcoin is leading the cryptocurrency charge.
Yet cash remains and continues to occupy a key space in the market. One of the reasons for this is that cash is the ultimate backup. If a business does not or cannot accept anything else, it can always take dollar bills.
For a business such as a retailer, cash is critical. Figures are often quoted about the ‘cost of cash’–the ongoing charge to the wider economy, including consumers and businesses, to cover handling, security and all the other things that go into keeping cash circulating. A Tufts University study estimates it at $200 billion a year for the US.
But looking at it this way seems a little bit backwards–the real question should be ‘what would the cost be if we stopped accepting cash?’
The fact is the price would be enormous as whole swathes of society would be cut off from using particular services or paying for certain goods. Low income Americans use cash for a lot more purposes, and bigger ticket purchases, than their wealthier neighbors. In fact, the total value of cash spending among people in the US earning less than $25,000, at $558 each month, is much higher than any other group, according to a Federal Reserve report.
As a merchant, you would also reduce your customer base if things went wrong with, for instance, a card network or your store’s Wi-Fi.
As the Fed report shows, cash continues to play “a significant role as the fallback payment instrument for most consumers”–and this statement is true not just for the US but around the world. For example, six in ten consumers who prefer debit cards, picked cash as their second choice, the Evidence from the Diary of Consumer Payment Choice study shows.
So when there’s a power outage or the card reader stops working, the business can always accept cash. The cost of cash may be high, but the cost of abandoning it would be far higher.