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According to a Barron’s article titled The End of Cash?, the use of cash as a percentage of retail spending in the USA declined from 36% in 2002 to 29% in 2012. Extrapolating these figures – by using the same negative CAGR that works out to around 19.5% per decade – we should see the end of cash usage by 2202, that is, 190 years from now. An Excel model used to arrive at these figures can be downloaded from my personal website here. Since it’s fashionable to proclaim the death of cash, in arriving at the Zero-Cash-Day, I’ve conveniently ignored the fact that cash contributes 40% to P2P payments (Source: Blog post titled The Less-Cash Society by Aite Group’s Ron Shevlin).

But will cash really be dead even two centuries from now? I strongly doubt it. Mainly because the movement between cash and noncash modes of payment is not as unidirectional as it is often made out to be. Just as electronic fund transfers and card payments have been replacing cash in some facets of life, cash has also been edging out electronic payments in some others. Counterintuitive as this might seem at first glance, a quick look at a few recent payment innovations will make my point clear.

A couple of years ago, we saw the launch of Kwedit in the USA. Now called PayNearMe, this alternative payment method permits people to shop online but pay with cash at brick-and-mortar stores.  As I’d pointed out in Why Pay By Credit When You Don’t Have To Pay By Kwedit, a blog post I’d written at the time Kwedit was launched in 2010, the new method of payment was targeted at people who either couldn’t qualify for payment cards or didn’t want to use them for making online payments owing to security concerns.

Subsequently, growing incidents of identity theft and loss of financial data have prompted regulators to enforce greater security measures by way of 3D Security, One Time Password, Out of Band Authentication and so forth. While they’ve made online payments more secure, they’ve also made them more rare: The friction they’ve caused has virtually obliterated the mobile payment channel; the multi-website trips they entail before a payment can be completed have led to greater number of failed online payments, which could be as high as one in 12 payments, as I’ve noted in my blog post titled Skating Away With Online Payments. Of late, the fear of an online payment getting lost somewhere in the cyberspace is increasingly pushing me to opt for cash-on-delivery terms for eCommerce transactions despite having used card and bank transfer based electronic payments regularly for around 10 years now. So, at least in my case, ‘once an electronic payment user’ doesn’t mean ‘always an electronic payment user’.

Looks like I’m not alone.

A leading airline in India recently announced cash-on-delivery as a new way to pay for customers booking tickets on its website. This comes after years of supporting just the standard modes of electronic payments via bank transfers and debit / credit cards. Under COD, customers browse flights, check availability and book e-tickets online, same as before. However, now, the airline’s COD service provider – a Silicon Valley VC-funded startup – collects physical cash from the customer’s house. As soon as this happens, the airline emails the e-ticket to the customer, no differently than before. With this great example of omnichannel support, the airline mitigates the risk of customers moving away to costlier physical outlets to buy their tickets just because they’re no longer comfortable with making payments online. At the same time, the new payment method doesn’t erode the airline’s margin since cash collection charges are no greater than the Merchant Discount Fee / Merchant Service Charge applicable for card payments.

If cash can enter into a business like e-ticketing that has worked on the basis of 100% online ordering and fulfillment all this while, I’m even more convinced about my oft-expressed belief that the cash-versus-cashless pendulum could swing both ways. So, at  least for now, tales of the death of cash are, like those of Mark Twain’s, greatly exaggerated.

Ketharaman Swaminathan On May - 3 - 2013

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  • sketharaman

    When all else fails, cash prevails. Even at the mobile payments prima donna Starbucks.

  • sketharaman

    UPDATE DATED 24-AUG-2016:

    Three years after I wrote this post, TIL that people predicted the death of cash within a decade in the 1960s!

    “…cash remains widely popular. A 2014 study by the Federal Reserve showed that cash is used to complete 40% of transactions, most of them less than $20.”

    “55% of small businesses in the U.S. don’t accept plastic”.

    ” Accepting credit cards can cost a business up to 4% per transaction… mobile payments like Apple Pay can be just as expensive for merchants. If [mobile payments are] done in a way that simply replicates what credit cards do, they’re going to suffer from the same sort of disfavoring from merchants as credit cards”.

    Source: TIME (

  • sketharaman

    UPDATE DATED 11 MAY 2017:

    Try as They Might, Trendy Retailers Won’t Kill Cash
    Don’t believe the hype. Cash is still king.
    by Polly Mosendz

    Four years after I wrote this post, Bloomberg says “rumors of cash’s death have been greatly exaggerated.”

    This is also the first article I’ve read that takes cost of cash head-on and dismisses it as “microscopic” compared to MDR for card payments.

    According to a November 2016 study by the Federal Reserve Bank of San Francisco, physical currency is still the most frequently used payment method, followed by debit cards, which pull funds directly from a checking account. “Each company has its own business model,” said J. Craig Sherman, the National Retail Federation’s spokesman. “But by and large, cash is king, and retailers prefer cash.”

    Credit cards offer convenience and speed, but they also come with fees that range from 1.5 to about 3 percent. “There are certainly costs involved with handling cash, but they are microscopic compared to the costs of accepting plastic,” Sherman said. These bills—armored car pick-up, accounting, and losses due to theft—are largely negotiable, as the business owner can fire one vendor and opt for a cheaper one. “Banks and card companies do not negotiate over their swipe fees,” Sherman added.

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