Cash isn't going away, despite declining use (2024)

Al Drago/Bloomberg

Despite efforts by some businesses to scrap cash, and an overall shift to digital payments following the COVID-19 pandemic, paper tender seems poised to stick around.

Cash payments declined during the pandemic as consumers turned more heavily to contactless payments, and its use continues to tick down. Notably, cash accounted for 31% of all payments in 2016, a figure that dropped to 18% in 2022, according to a report by the Federal Reserve Bank of San Francisco.

Yet there are other factors at play, making it unlikely that cash will disappear altogether any time soon. Many businesses, especially smaller ones, aren't anxious to give up cash, and there are generational preferences as well. What's more, some states and municipalities require local businesses to accept cash, in recognition of the unbanked and underbanked, who rely heavily on cash for their transactions.

If anything, checks are the likelier candidate to be on the chopping block. South Africa, for instance, discontinued check issuance and acceptance at the end of 2020. "You're more likely, I think, to see checks go away before you see cash go away," said Russ Jones, a payments consultant with Glenbrook Partners.

Here's what payments professionals need to know about the future of cash payments:

There's a split among merchants

The merits of going cashless are an ongoing debate among merchants, said Ben Jackson, chief operating officer at the Innovative Payments Association, a trade organization for the electronic payments sector. The debate turns on the cost of cash versus the cost of card acceptance or other electronic payments, the attitude of the business owner, local and state laws and, of course, customer preference, he said. If customers want to pay in cash, for whatever reason, "I think that will be the determining factor for a lot of companies," he said.

To some extent, there's a divergence based on the size of the business. Many small merchants, for example, aren't eager to scrap cash acceptance for several reasons. For one, with cash they don't have to wait to get paid. "There's a real cash-flow benefit to small businesses," Jones said.

Large businesses, on the other hand, tend to lean more heavily toward electronic payments, and with good reason. They don't have the same cash-flow crisis that small merchants do, given that they often have credit lines and multiple credit providers they can tap, Jones said. Big merchants also tend to deal with large amounts of cash and, with more employees, there's a greater chance of it getting pocketed.

What's more, bank fees can add up quickly when depositing large amounts of cash, Jones said. Though these merchants prefer debit cards to cash, credit cards are also preferable, in many cases, to cash based on consumer spending patterns. Indeed, data from the San Francisco Fed show that card purchases average about $95 per transaction, while cash purchases average $39 per transaction.

"As a merchant's share of sales becomes more card heavy, like it did for a lot of merchants during and after the pandemic, there becomes a certain point where it costs too much and is an annoyance to even accept cash," said Mike Strawhecker, president of Omaha, Nebraska-based consultancy TSG, in an email.

A middle ground in the war on cash

Some businesses that initially opted to go cashless have had to backtrack as a result of changing local laws or customer backlash.

A number of states including Massachusetts, New Jersey and Rhode Island, and municipalities like New York City and Washington, D.C., require retailers to accept cash. King County, Washington, which includes Seattle, will require businesses to accept cash in 2025. These laws are largely due to the concern for unbanked and underbanked individuals.

There's also the issue of customer preference. Merchants don't want to risk losing out on a sale because they don't accept popular payment types.

"Merchants aren't in the payments-acceptance business. They're in the business of selling products and services, so they want to accept any payment that a customer wants to use," said Rodman Reef, founder of Larchmont, N.Y.-based payments consulting firm Reef Karson Consulting and a member of the U.S. Payments Forum. "As soon as they decide not to take a certain payment type, they are eliminating or discouraging a certain part of the market."

Several years ago, the restaurant chain Shake Shack, for example, decided to abandon previously announced plans for fully cashless restaurants, based partly on customer feedback. Bluestone Lane, which has more than 55 Australian-style cafés and coffee shops across the U.S., moved to cashless payments in 2016, but had to start accepting cash in certain locations where local laws require it. Sweetgreen, the fancy salad chain, also backtracked on its cash-only plan and accepts cash and cards as forms of payment in its more than 220 restaurants.

What lies ahead

Cash use today is largely generational, with older generations using it more heavily than younger consumers who are more focused on debit and buy now/pay later.

Even so, consumers are likely to find it harder to pay with cash going forward, especially in certain venues. Some national parks, for example, don't accept cash, Strawhecker said.

The upshot seems to be that while cash may be on the decline, it's not going the way of the dodo bird. "You're seeing in the U.S. continuous growth of the use of cards or digital wallets and I don't think that's going to stop anytime soon," Reef said. On the other hand, there will still be people who don't have access to those options, or don't want to have those options, Reef said. "I think you're still going to see cash in the market."