Friday , September 25, 2020

COMMENTARY: Cash Is Still King, And Opportunities Are Hidden in Plain Sight

By Danny Shader

In October 2016, the Federal Deposit Insurance Corp. released its 2015 National Survey of Unbanked and Underbanked Households, providing valuable insight into the demographics and banking history of the unbanked and underbanked (often collectively referred to as the “financially underserved”).

Many are surprised to learn that a large percentage of Americans (27% of U.S. households) are financially underserved. Most would consider the underserved population to be heavy cash users, but there are many more U.S. adults who simply prefer to transact in cash due to security concerns or a distrust of banks. In fact, more than a quarter (28%) of unbanked households reported their distrust of banks as one of the reasons they were unbanked, while nearly 11% of unbanked households reported this to be the main reason.

A consensus on the number of cash consumers in the U.S. still does not exist, though we know the financially underserved alone account for 67 million adults. Cash use and frequency of cash use can vary greatly depending on a number of factors, but cash consumers can be defined as those who prefer to use cash to pay for life necessities such as rent, utilities, and other bills.

In preliminary findings from the Federal Reserve’s 2015 Diary of Consumer Payment Choice (DCPC), cash continues to be the most frequently used consumer payment instrument and is the go-to payment choice for everything from government payments to gifts, auto, and transportation.

Other key findings include:

–32% of all consumer transactions, including bill payments, are made with cash

–40% of purchases in the government and nonprofit category are made with cash;

–39% of purchases in the entertainment and transportation, auto, and auto-related and food and personal care supplies categories respectively are paid with cash.

There is a popular myth that consumers either cannot or will not pay their bills using cash. Yet, according to the DCPC report, households earning less than $25,000 use cash for 48% of their transactions. Those who earn $25,000 to $50,000 per year use cash for 33% of their transactions. According to the U.S. Census Bureau’s 2015 Income and Poverty in the United States report, nearly 45% of U.S. households earn less than $50,000 a year.

People remain wedded to cash for a variety of reasons. Among the unbanked and underbanked, cash is preferred because they know it is accepted universally. It’s also useful for those who don’t want to share their purchase history with significant others—think shoes, gifts, fishing rods. According to an FDIC report, more than one in four unbanked households (29%) reported that privacy was one of the reasons why they chose not to have a bank account.

PayNearMe users report that they pay with cash because it is fast, there is peace of mind that the payment is guaranteed when money has been received, it’s cheaper than other payment methods, and it helps them budget.

Often overlooked in the cash-consumer category are those who use cash because that is the way they are paid. Examples include service-industry employees such as wait staff, hairdressers, taxi drivers, and dog walkers.

Lastly, there are those who favor cash to avoid the maintenance fees often associated with the use of checking accounts and credit cards. Almost a quarter of unbanked households reported high or unpredictable account fees as one reason they did not have accounts in 2015.

This market of nearly 67 million Americans represents $1.6 trillion in consumer spending, and opportunities exist for organizations that meet these consumers where they are. Like other consumers in today’s digital economy, cash consumers flock to businesses that offer convenient payment options that work with their schedule and are available in their own neighborhood and on their mobile phone.

Businesses that wish to tap into this large market effectively should take the time to understand these facts:

–69% of the unbanked have access to a mobile phone; 43% of those are smart phones;

–91% of the underbanked have access to a mobile phone; 76% of those are smart phones;

–38% of 18-to-24-year-olds prefer cash over credit cards, while nearly 1 in 4 of those above 24 years old prefer the same.

Businesses and government organizations that provide cash consumers with the same ease and convenience that digital-payment users enjoy will find themselves with happier customers, more on-time payments, and a healthier bottom line.

For more information about the financially underserved and how to serve cash users, check out our blog.

Danny Shader is chief executive and founder of PayNearMe, Sunnyvale, Calif.

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