In our rapidly evolving digital world, it’s the youngest members of society who will drive change, dictate the shape of things to come and embrace new technologies. As far as financial services are concerned, it might be assumed that younger consumers would be the first to get behind an entirely digital payments system.
Indeed, non-cash payments are becoming more common with each passing year, but that does not tell the entire story. When it comes to planning strategy and investment across retail banking channels, financial institutions (FIs) should acknowledge that, for younger consumers and millennials in particular, cash still has an extremely important part to play.
In a report titled ‘The State of Cash’, published in November 2016, the San Francisco Federal Reserve’s Cash Product Office highlighted the wide range of US consumers who prefer cash and regularly use it. Nearly four out of ten 18 to 24-year-olds (38 percent) and three out of ten 25 to 34-year-olds (29 percent) said cash was their preferred payment method. This compares to around a quarter of over-65s (24 percent) and 55 to 64-year-olds (26 percent).
When it comes to actual payment instrument use, the research showed that over-65s made the most cash transactions in 2015. Across every age group, cash purchases were more common than credit card transactions, and despite popular belief, cash is not yet dead.
For its latest Global Cash Index, PYMNTS.com spoke to Claire Wang and Wendy Matheny, co-authors of the Federal Reserve study, about their findings regarding younger consumers. Ms Matheny said: “The fact that 18 to 24-year-olds made a larger share of people who prefer using cash pretty much throws cold water on the idea that only older people use cash or that younger consumers don’t like cash.”
One of the possible reasons for the youngest customers showing a preference for cash is that they don’t have access to other payment products, such as credit cards. It could also be that they simply value the convenience of cash. This is one of the potential reasons why, in the US in 2015, 60 percent of transactions of less than $10 were paid in cash.
Ms Matheny concluded: “If things continue as they have been, cash is maintaining its own and holding strong even with more and more payment options available out there. If all of a sudden, for your pack of gum and your soda, you’re no longer paying cash – for that small food or personal care transaction – that’s when we would expect to see more dramatic changes in cash [usage].”
What does this all mean for banks?
One of the key messages FIs can take away from this relates to the importance of a sophisticated, detailed approach to the distribution of cash throughout your business, inclusive of the ATM and branch channel as well as any physical vaults that the bank may be managing. It is a difficult balancing act in today’s economic climate. It would not be a fair statement to say that cash is on the decline, but the volume of cash certainly is, as flexible payment options are appealing to various demographics.
With cash and coin destined to be around at least into 2026 as many countries are reporting, your business should still be looking into fine-tuning the cash distribution chain and looking at the ATM through the eyes of the consumer.
One of the key principles to always bear in mind is the importance of consumer choice. Today’s customers want a diverse, omnichannel banking experience that gives them the freedom to manage their money and make payments in the way that suits them. That could involve anything from old-fashioned cash to cutting-edge mobile technology.
Whatever the flavor of the day may be, it is clear that customers want it now and want it to work. Banks need to make a conscious decision how to provide the best omnichannel experience – physical and digital – in order to enable that choice in the most transparent manner.
Image: iStock/Ozgur Coskun