Cash or Charge?

In the intensely competitive world of credit cards, one potential growth area is capturing share of payments from cash. The infrastructure to support card payments has been expanding over the past several years into non-traditional venues and, in tandem with wider acceptance, card issuers are offering incentives to encourage using credit for everyday purchases historically dominated by cash. Despite this evolution, cash still remains king for many Americans.

To better understand payment behavior, we surveyed 1006 American adults about their previous day's purchases and how they paid for those products and services. As we'd expected, we found that cash was used for half (53%) of all transactions and accounted for one-quarter (24%) of all dollars spent, confirming that consumers tend to pay for small-ticket items with cash. Credit cards account for significantly fewer transactions but a similar dollar amount to cash and debit, indicating they are used more often for larger purchases.

In fact, as the purchase value increases, non-cash payment methods (credit, debit, and check) become more common:

Three specific everyday purchase types targeted by credit card companies are gas, grocery, and pharmacy. Our findings confirm this is area is ripe for increase in credit card usage, as a significant proportion of consumers paid for their gas (35%), grocery (41%), and pharmacy (40%) purchases with cash.

There are three main consumer beliefs that will have to be overcome to conquer cash's stronghold on gas, grocery, and pharmacy purchasing:

1. Cash is faster and more convenient.
2. Credit can't or shouldn't be used for smaller dollar value purchases.
3. It's easier to budget or keep track of expenses when using cash.

Transaction speeds vary and are out of the marketers' control, but messages of convenience and incentives to make each consumer's credit card their default payment method can be employed to influence consumer behavior. Although difficult to change opinions and usage patterns, it is not inconceivable; many will recall that not long ago, paying for groceries with a credit card was almost an embarrassment, as it implied you were short of money and needed the credit.

Providing an alternate card payment form like stored-value cards may migrate behavior away from cash for small-value purchases and toward card-based payment methods for everything from transit fares to your morning coffee. As consumer perceptions and purchase behavior change, cash's reign as king may come to an end -- and credit card companies are poised to cash in.