The role of payments in enterprises is usually as a commerce-enabler — a tool for exchanging value between parties. But the customer experience of paying for purchases at brick and mortar retailers is markedly different compared to online platforms like marketplaces. In 2023, the Federal Reserve found that one in five consumers reported cash as their preferred payment method for in-person purchases, “indicating a persistent demand for cash for in-person payments.'' Despite that demand, many merchants went cashless during the COVID-19 pandemic, which has since spurred seven U.S. states to intervene by passing payment laws that require businesses to accept cash at all physical points of sale (PaymentsJournal).
Although many of us default to paying with cards, payments and financial services leaders at traditional retail businesses still need to consider the role of cash for their shoppers. In this article, we’ll explore three common reasons why customers continue to use cash, the reasons to go cashless, and what retail payments professionals should consider as they evolve their payment operations to meet and increase shopper demand.
Why customers use cash
Privacy
After analyzing tens of thousands of actual purchases, researchers at Notre Dame found that consumers prefer to pay with cash instead of credit or debit cards for purchases they feel guilty about. Why? With cash, there’s no trackable paper trail or electronic statements. Chris Bechler, one of three study authors and an assistant professor of marketing at the university, said in an interview with Payments Dive that “this pertains to ‘hard to justify’ purchases, such as cigarettes, donuts, or similar expenses that consumers might not want to be reminded of later.”
Accessibility
The latest data from the Federal Reserve estimates that 18.7 million households in the U.S. are underbanked or unbanked. These customers are likely to use money orders, remittances, and check cashing services outside of a bank to meet their day-to-day financial needs. The Fed’s more recent 2023 Findings from the Diary of Consumer Payment Choice notes “there is a strong correlation between cash use and being unbanked,”, so these customers most likely are using cash because they don’t have access to accounts or debit cards through the formal financial system. They may earn wages in cash, or take their paychecks to check-cashing locations to gain access to cash. Outside of the United States, we know that over 50 percent of all global remittances are paid to unbanked or underbanked individuals in need of a cash payout option (Mastercard), underscoring the important role of cash pickup options for cross-border remittances.
Budgeting
Among personal finance enthusiasts, another popular reason to use cash is for ease of budgeting. NerdWallet explains that the “cash stuffing” or an envelope system “allows you to physically portion out your monthly income into different spending categories,” further illustrating the concept:
“Take a few envelopes, write a specific expense category on each one — like groceries, rent or student loans — and then put the money you plan to spend on those things into the envelopes.”
Ahead of each purchase, consumers must physically take money out of the envelope to pay for it. This can be very helpful to someone sticking to a strict budget avoiding overdraft fees or financing costs associated with credit. Plus, several studies have shown that using credit cards makes consumers spend more. If shoppers are living paycheck-to-paycheck with minimal discretionary income, the physical presence of cash helps them stick to their budget.
Why customers go cashless
For all the reasons that shoppers pay with cash, there is still a strong case for other payment choices:
- Convenience. The ease of paying with cards or mobile wallets, without having to find an exact amount or carry bulky change, has made both payment methods more popular in recent years. Over half of consumers use digital wallets more than traditional payment methods (Forbes). Plus, digital wallets and cards can be used for purchases anywhere — even online. Alternatively, with cash, customers are limited to in-person transactions.
- Security. The Brookings Institute points out that “cash is vulnerable to loss and theft, a problem for both individuals and businesses.” While credit and debit cards can certainly be subject to loss and theft, cardholders can freeze accounts as soon as they realize a card goes missing — minimizing the risk of funds actually being lost due to fraudulent transactions. With cash, there are no means to recoup funds.
- Rewards. Savvy shoppers compare loyalty & rewards programs to maximize their budget, and the payment method is often part of the equation. For example, the Target RedCard saves customers 5 percent off their everyday spending at the retailer, offering additional value when paying with the co-branded credit or debit card option compared to cash.
Modernizing retail payment operations
Recent insights from Forrester caution retailers and merchants:
“Don’t build a payments strategy around a collection of payment methods. Rather, analyze your unique [presence] — the devices, channels, platforms, and interaction modes that your customers are using to engage with you — and use diligent customer journey mapping to determine the payments experiences you need to support and/or improve those touchpoints and journeys.”
While brick & mortar retailers and convenience stores have to consider in-person interactions and the role of cash, their payments teams can still build an omnichannel approach to meeting and increasing shopper demand. Connecting both cash and non-cash payments into a singular app gives consumers options for both exchanges in-store, virtually, and provides retailers with additional app engagement.
Supporting cash use can translate into building ongoing financial trust, opening the door to retailer-owned banking functions like accounts and cards. When offering financial services either via cashiers, contactless ATM-like machines, or via an app, users are three times more likely to interact on a daily basis. This gives a new, untapped landscape for promoting special offers, rewarding loyal customers, or cross-selling to partners.
As a licensed money transmitter, Alviere uniquely enables retailers by supporting cash loading capabilities in-store and cash-to-cash embedded remittances to deepen customer engagement, drive foot-traffic to stores, and increase revenue per square foot. If you’re interested in exploring how your brand can continue to draw cash-carrying consumers in-store, see Essentials for remittance at retail.
