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Understanding why people like cash and what that means for POS systems

 Big Pile of Cash

There has been a lot of talk over the last 12 months about the way people choose to pay for goods. Mobile payments continued to gain ground in 2014, particularly with the launch of Apple Pay, Snapchat’s Snapcash and numerous other ways to make purchases using smartphones and tablets. At the same time, the security and reliability of credit and debit cards took a minor hit, with numerous big-name retail and hospitality brands suffering highly publicized breaches that resulted in the theft of millions of credit and debit cards.

Cash is old faithful

But despite so much commotion about mobile and plastic card-based payment methods, it seems the preferred payment method of choice – for the near future, anyway – remains cold, hard cash. Many industry pundits have suggested that cash may be a dying breed, much like checks, but if new research from the Fed’s Survey of Consumer Payment Choice shows anything, it is that cash is going nowhere.

The biggest notable shift, according to the Federal Reserve Bank of Boston economist Scott Schu’s interview with PYMNTS, is that people are forgetting about checks and are switching to debit and electronic payments. It is, in many ways, a move that people have seen coming for a long time and is actively being accelerated by the fact that fewer and fewer businesses accept payments by check. However, this same trend may also shed light onto one of the reasons cash remains so strong – not only is it easy to use, it is still (and will continue to be) widely accepted.

Another key advantage of cash: People can readily see the amount of cash they have available at any given moment. While the economic recession is ancient history in the eyes of many consumers, the fact of the matter is that it subconsciously still affects many peoples’ spending habits. With credit and debit cards, people are often not aware how much they have spent and the funds or credit they have available to them. This leads to overspending, which is why cash remains so popular.

“There seems to be a substitution that’s going on that’s very clear and evident within the non-cash payments, but the cash payments themselves seem to be a unique and different option,” Schuh explained to PYMNTS. “Naturally, it’s the only physical payments form factor that’s left and for that reason alone it may hang in for some time.”

Looking at the future of payments

While cash remains the payment solution of today, will the status quo remain tomorrow and for the next five years? Schuh was quick to note that the share of credit payments has climbed in recent years after the recession, while cash usage has shrunk. That trend may continue over the next few years, but at the end of the day, cash still comes before credit.

This likely will not change so long as security issues at the point of sale continue to manifest themselves. Security is important for many customers, but consumers only truly care when breaches are reported. In a year of numerous attacks at POS systems, that means security is a significant driver for many customers.

Point of sale developers, then, will need to focus on security in the near future. Utilizing new forms of encryption and tokenization will help people feel more confident at the point of sale and may encourage more credit and debit payments.

As for new forms of payment, Schuh is not optimistic. Some of the new payment options, such as mobile alternatives, still do little to address the key reasons people use cash, such as the ability to see how much money they have left on the fly. Until these issues are resolved, cash will still remain a popular payment tool.