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Data Breaches May Drive Consumers Back to Cash

Millions of consumers felt a twinge of panic when the scope of last year's Target data breach was revealed. But those who paid in cash likely felt no anxiety at all. Indeed, the Target breach and a recent spate of other high-profile cybersecurity issues highlight the timeless appeal of cash. While mobile wallets, Bitcoin and prepaid cards receive a great deal of attention as the payment innovations of the future, many customers still prefer to use cash to better maintain their budgets and protect themselves from account takeover.

The use of cash is dwindling, but greenbacks are still the payment method of choice for a significant portion of purchases. Cash was used for about 29% of all U.S. retail payments in 2012, the latest data available, according to McKinsey & Company. As data breaches involving credit or debit cards continue to grow, so will customer awareness of the inherent risks. Indeed, a January 2014 survey of 1,002 adults by the Pew Research Center found that 18% of online adults have had their personal information stolen, up from 11% in July 2013.

While cards have long been positioned as a safer alternative to cash, which can be lost or stolen, the reality is that today's consumers may view identity theft and data breaches as more likely occurrences than a pilfered wallet. The highly anticipated arrival of EMV cards should bring improved levels of security for card transactions. But merchants face an October 2015 deadline for improving technology to accept EMV cards. At least until those new security measures are in place, cash remains the most trusted and secure form of payment.

In light of recent history, financial institutions should reconsider the notion of promoting card use for every transaction, no matter how small. For one thing, if more customers use cash, they will visit branches and ATMs more frequently. This will give banks a greater number of one-on-one customer interactions and cross-sell opportunities.

A greater emphasis on cash would also help banks cut back on the costs associated with card replacements. The Credit Union National Association and the Consumer Bankers Association report that banks and credit unions have collectively ponied up more than $200 million to replace cards for customers and members affected by the Target data breach. The total cost to replace each card averages $10, including customer notifications, producing and shipping new cards, managing card activation and any supplemental communication. These significant expenses are repeated with each instance of a data breach.

While a new payment app seems to appear every day, it is unlikely that any single innovation will render cash obsolete. Consumers who use cash ultimately avoid the high levels of risk associated with swiping plastic and leave no trail for hackers to follow. Those kinds of advantages never go out of style.

Douglas Ceto is chief executive and president of Atlanta-based CetoLogic, a provider of software and analytics solutions for financial institutions and retailers.


(8) Comments



Comments (8)
Perhaps inelegantly made, my point is that no other single payment mechanism accounts for more transactions than cash.
Posted by jim_wells | Thursday, August 21 2014 at 5:52PM ET
Just the math. 40% is far short of a "vast majority." Looks like the majority, 60% is made up of other payments mechanisms than cash, including, as I said, checks, cards, and now electronic payments.
Posted by WayneAbernathy | Thursday, August 21 2014 at 5:45PM ET
Wayne, not sure how you come to your conclusions. The Federal Reserve System Cash Product Office reports that cash accounts for 40% of all payments made by the average American, while debit cards account for just 25%. Meanwhile the Boston Fed reports that cash is generally valued over cards by consumers for its perceived acceptance, costs and ease of use.
Posted by jim_wells | Thursday, August 21 2014 at 5:34PM ET
Jim, it is just reality. Cash is and has long been far less than the majority form of payment in the United States. First checks, then cards, and now added to that, electronic payments, have been replacing cash for generations. Cash has its place, and will for a long time, but it is more expensive and slower to use and move, both for consumers and merchants.
Posted by WayneAbernathy | Thursday, August 21 2014 at 5:04PM ET
As the simplest, most ubiquitous, most widely accepted, real-time payment mechanism in the US, cash continues to comprise the vast majority of consumer purchase transactions. As banks and retailers demonstrate that they can no longer ensure the integrity of the payment cards they have pushed on consumers for decades, nor the personal information of cardholders, consumers have no problem reducing their use of cards and in favor of cash. And, they don't believe for a moment the manufactured nonsense about cash being more expensive than cards.
Posted by jim_wells | Thursday, August 21 2014 at 4:30PM ET
Based upon a recent visit to Walmart, the use of EMV cards at EMV enabled POS terminals are far slower than magstripe, resulting in extended queues and customer wait times. Unless addressed quickly, this will slow customer uptake of the new system.

On a separate issue, cash should never be completely eradicated from the payment system. Cash is the only mechanism that is completely "fail safe" in the event of a disaster. Consider Hurricanes Sandy and Katrina, the Northeast blackout of 2003, 9/11 etc., when power was disrupted, and cellphone communications were not available. The only form of commercial transactions that remained viable were cash based.
Posted by pah001 | Thursday, August 21 2014 at 3:43PM ET
We just need a safe low cost payment network.
Posted by Gary Lewis Evans, CEO Paymency Inc. | Thursday, August 21 2014 at 1:31PM ET
Until customers and merchants learn once again how expensive it is to use cash. When you lose cash, you lose it. Banks have been at the ready to hold cardholders unharmed from wrongful charges connected to the data breaches. And businesses who are trying to drive their customers to cash will rediscover that handling and moving cash is a very expensive problem.
Posted by WayneAbernathy | Thursday, August 21 2014 at 11:21AM ET
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