Is Cash Dead?

People appear to be using cash less and less. Account to Account (A2A) payments processed over the debit systems, such as Zelle, Venmo, Apple Pay Cash, Square Cash, Uber and Lyft, accounted for about 1.2 billion debit transactions in 2018, according to the 2019 Pulse Debit Issuer Study. Add to that the widespread usage of consumer credit and debit cards and the large-scale reduction of cash withdrawals from ATMs, and some may be asking whether cash is dead. Tim Holt, founder of PRI with 40 years of banking experience, doesn’t think so. At least not yet.

“Cash may be dying, or at least be sick, but I wouldn’t say it’s dead or will die in our lifetimes,” Holt said. “There are too many factors that will keep it going.”

Although it’s true that ATM cash withdrawal volume has dropped precipitously, it doesn’t mean that people aren’t getting cash by other means. Getting extra cash at the check-out register, for instance, is not being monitored by anyone.

People continue to use cash for four primary reasons:

• It’s a convenient medium of exchange. Cash is easy to carry, and it’s widely accepted. It can be used even when other methods are not working, such as during power outages and natural disasters.
• It’s anonymous.
• There are still merchants that prefer cash because they don’t want to pay the card processing fees.
• It serves as a store of value. Cash is viewed as a low-risk way to hold financial assets, especially during times of political or financial turmoil when people fear that institutions are in danger of failing. It also protects against government seizure.

Cash, however, remains a costly component of branch operations. Handling – including transporting, sorting, counting and auditing – largely requires manual labor, and in many cases, dual control manual labor. Storing, cash vaults, the cost of the funds and insurance all add to the overall costs of cash. 

“Minimization of cash is actually good for the banking industry,” Holt said. “It costs a lot to handle cash. It must be counted, moved and the old bills separated out and destroyed, which all takes manpower.”

Cash transactions are expensive to process. Cash recyclers can help to minimize per transaction costs by automating cash handling and offering additional benefits to teller line operations. Efficiencies can be gained when recyclers are used as the “vault on the line.” Not every teller station needs to be outfitted with a recycler, but every teller should be able to buy and sell cash to the recycler. This reduces the amount of manual labor involved in cash handling and the dual control required for buying and selling to the traditional cash vault.  

As Holt points out, “Financial institutions make little to no profit off of handling cash whereas they receive income from each card swipe.” Additionally, to the advantage of FIs, cards are used for higher transaction amounts, as cited by the Federal Reserve Bank of Boston.

So, “Is cash dead?” Not quite. But financial institutions must adapt to the changing payment environment to remain efficient and profitable.

Profit Resources specializes in identifying profitability improvement areas for financial institutions through revenue growth, cost control, streamlining processes, and effective use of technology. Contact us to learn more about our personalized approach to process improvement and debit card profitability enhancement.