Whoever said cash was king didn't have a good grasp of how
consumers choose to pay.
When asked their preferred payment type, 43 percent of
Americans chose debit cards compared with 35 percent who preferred
credit cards and just 9 percent who preferred cash, according to a
2014 TSYS online survey of 1,000 consumers who owned both a debit
card and a credit card.
According to TSYS, credit cards remained the preferred payment
method for the same percentage of people in 2014 and in 2013, but
the percentage favoring debit cards fell from 49 percent in 2013 to
43 percent in 2014.
Plastic is also Americans' top choice for online shopping, with
48 percent in 2014 preferring to use credit cards, 30 percent
using debit cards and 12 percent using PayPal.
Source: TSYS 2014 Consumer Payments Study
Besides online spending, credit is the preferred payment for the
most people at department stores, while debit rules at the
supermarket and discount stores. Both are equally popular at gas
stations and dine-in restaurants.
Currency is still considered best for quick purchases. In 2014,
consumers preferred to use cash at fast food restaurants and coffee
Source: TSYS 2014 Consumer Payments Study
Costs of cash
One reason could be that it comes with a cost. According to a
2013 study by Tufts University, Americans spend $200 billion per
year to use cash, which averages out to $1,739 per household. The
cost is attributed to such factors as ATM fees, theft, and time
spent traveling to get cash. Unbanked Americans pay on average
$3.66 per month more than banked consumers to get cash, according
to the study.
The average American spent 28 minutes per month traveling to get
cash in 2013.
Americans' reliance on plastic for noncash payments has been
growing over the years. In 2012, 67 percent of consumer and
business payments were made with payment cards, up from 43 percent
in 2003, according to the 2013 Federal Reserve Payments Study.
Credit card transactions accounted for 21 percent of the total
number of noncash transactions in 2012, debit cards accounted for
38 percent, ACH 18 percent, checks 15 percent and prepaid cards 7
Among all noncash payments, consumers and businesses spend the
most when they use ACH payments or checks, which makes sense since
those methods tend to be used for bills, payroll and other
larger-value transactions. When it comes to cards, consumers and
businesses spend more when they use credit cards. The average
value of general-purpose credit card transactions in 2012 was
larger ($94) than the average value of debit card transactions
($39) or prepaid card payments ($24).
Source: The 2013 Federal Reserve Payments Study.
The rise of prepaid cards
One alternative to cash that is gaining popularity is the
prepaid card. A 2014 survey by Mercator Advisory Group found
that 56 percent of U.S. adults had bought a prepaid card in the
previous year, up from 53 percent in 2013 and 47 percent in 2012.
Prepaid cards have particularly appealed to the younger
set. In 2014, 69 percent of adults between the ages of 18 and 24
had bought a prepaid card in the prior year. That's up from 59
percent of adults in that age group the year before.
Source: Mercator Advisory Group CustomerMonitor Survey Series,
Payments, 2013, 2014
*Statistically significant difference 2013-2014 at the 95%
One type of prepaid card is the general purpose reloadable (GPR)
card, typically used to pay bills, access cash and make purchases.
Approximately $65 billion was loaded onto GPR cards in 2012 -- more
than double the amount loaded in 2009.
GPR cards were at one time largely targeted at low-income and
underbanked consumers. In fact, 48 percent of the underbanked
community reported owning a GPR card in 2013.
However, the greatest growth in card ownership has been among
higher income Americans. Between August 2012 and August 2013:
- Ownership of a GPR card in households that made more than
$100,000 per year increased by 9 percent.
- Ownership of a GPR card in households earning between $25,000
and $49,900 dropped 1 percent.
- Ownership of a GPR card in households earning less than
$25,000 increased by 2 percent.
Source: Federal Reserve Bank of Philadelphia, September 2014
While GPR use has risen among all age groups, younger groups
have seen the most growth. There was an 11 percent increase in
ownership of GPR cards among millennials between August 2012 and
Among Generation Xers GPR card ownership increased by 8 percent.
Ownership by baby boomers increased by 2 percent and consumers 68
and over saw their GPR card ownership stay the same at 4 percent.
Among users of GPR cards, 59 percent reloaded their cards at
least once a month, and the average amount put on the card was $80.
Millennials used their cards most frequently, averaging 7.7 times
per month and spending $134.
Fifty-nine percent of Americans said the cards help them "manage
money better" and "spend less" and 62 percent in 2013 said they
helped them avoid overdraft fees.
A growing subset of the prepaid card market is the payroll card.
In 2014, there were 6 million payroll card holders compared to 7.8
million U.S. employees receiving paper checks. By 2019, Aite Group
projects that there will be 12.2 million payroll cardholders
compared to 2.2 million U.S. employees receiving paper checks.
A cashless future?
Is a cashless future in the cards? A 2013 MasterCard report
found that in 2011, cashless payments made up 66 percent of global
Consumers in Belgium, France and Canada used cash the least in
2011, as cashless payments made up 93 percent, 92 percent and 90
percent of payments respectively. In the United States, 80 percent
of payments were cashless in 2011.
Consumers expect to make fewer cash payments in the future,
while also cutting back on credit and debit card use in favor of
other forms of payments. In an Accenture survey, 66 percent of
North Americans said they used cash daily or weekly in 2014 while
only 54 percent expected to do so by 2020.
Approximately 55 percent of consumers said they used credit
cards at least weekly in 2014, but only 52 percent expect to use
them that often in 2020. Likewise, 59 percent of consumers said
they used debit cards at least weekly in 2014, but only 53 percent
expect to use them that often in 2020.
Meanwhile use of digital currency, prepaid gift cards and PayPal
are expected rise.
Millennials are most likely to use digital currencies. Thirteen
percent used them in 2014 while 26 percent expect to use them in
2020. High income consumers are also more open to using digital
currencies than those in lower income brackets.
Nineteen percent of high income consumers used digital currencies
in 2014, and 32 percent expect to use them by 2020.
TSYS 2014 Consumer Payments Study
The Cost of Cash in the United States by the
Fletcher School at Tufts University
2013 Federal Reserve Payments Study Summary
2013 Federal Reserve Payments Study Detailed
Report, (released July 2014)
Mercator Advisory Group's Consumers and
Prepaid: Rising Use, Especially by Mobile
Why Americans Use Prepaid Cards by The Pew
Millennials with Money: A New Look at Who Uses
GPR Prepaid Cards by the Federal Reserve Bank of
, April 2015
MasterCard's Cashless Journey Report
Accenture's 2014 North America Consumer
Credit card market share statistics
Mobile payment statistics
Credit card delinquency statistics