The Decline of Cash: How Payment Trends Are Shaping the Future

Author: Barry Gideon, Senior Director of Commercial Payments and Channel Sales

The recent Diary of Consumer Payments Choice Study on payment trends revealed significant changes in the way consumers pay bills and make purchases. According to the report, consumers are reaching for cash less frequently, as card transactions continue to take center stage.

Trends like these are of particular interest to payment processors, whose business it is to help commercial entities meet the needs and preferences of consumer and business customers.

Cash Usage Evolves Across Demographics

While the report revealed an overall consumer movement toward credit and debit card payments, cash continued to have its uses across certain consumer segments. For instance, households making less than $25,000 annually used cash for almost a third of all purchases, a frequency that decreases as income levels rise. A similar trend is seen across age groups, as adults over 55 make cash payments at 1.5 times the rate of younger generations.

While adults aged 18 to 24 continue to use cash, its prevalence is declining. Today, GenZ makes only 1 in 7 payments by cash, compared to 1 in 3 prior to 2020. Adults 54 and younger are also increasing the use of credit cards, surpassing consumers 55 and older.

Consumers Prefer Digital for Person-to-Person Payments

Since 2016, far fewer consumers used cash to make payments to family and friends, as common apps make it easier to send and receive funds digitally. Digital person-to-person and money transfers have reached $2.8 billion in volume, up from $1.6 billion in 2018, according to the Federal Reserve Payments Study (FRPS).

Today, half of all person-to-person funds is remitted through payment apps. The use of cash also declined for payments under $25, as debit cards supersede in preference.

Businesses Indicate a Wide Range of Payment Capabilities

When it comes to meeting new payment preferences, the capabilities offered by many business-to-consumer entities reflect consumer preferences. According to the 2023 Small Business Credit Survey, over 90% of hospitality and retail establishments accept credit cards for payments, as do businesses in healthcare and education.

However, checks remain the most widely accepted form of payment across all business types. In fact, where payment was made through a third party or accepted after delivery of a product or service, 90% and 95% of firms respectively indicated an acceptance of check payments, compared to 80% and 69% of firms in these categories who accepted card payments.

While businesses may rely heavily on paper payments, the process isn’t without its challenges. Research conducted by the Association for Finance Professionals indicates that 65% of business respondents have been the victim of check fraud, as total annual losses are predicted to reach over $24 billion.

As a result, many businesses are developing preferences for electronic methods of sending and receiving payments. One recent survey reveals that 79% of vendors prefer digital payments, such as wire transfers, automated clearinghouse transactions (ACH), and virtual cards. Faster time to payment is the primary reason for such preferences, but businesses also benefit from reduced fraud and enhanced cash management.

Final Thoughts on Payment Trends

Evolving payment trends paint an interesting picture, one where preferences for speed and convenience are escalating. According to a recent report, faster and instant payment services now account for 40% of all business payment transactions. Likewise, 32% of Gen Z and 45% of millennials prefer the ease and speed of digital and faster payment options.

As trends like these continue to evolve, payment processors will need to follow along, developing the right tools and capabilities to merge digital speed and ease to create an environment that’s beneficial for both businesses and consumers.

About the Author: Barry serves large Corporate Treasury Services clients with complex needs. He is a dedicated source of expertise, helping customers to navigate the continually evolving payments landscape. Barry also serves a significant portfolio of Fintech companies with payment-centric business models, capitalizing on FNBO’s long-standing reputation as one of the nation’s 15 largest originators of ACH transactions with significant experience in the nuances associated with third-party ODFI/ACH processing.