Consumers are a lot less likely to use cash now than they were before the pandemic. But they won’t get rid of it entirely.
The share of payments made with cash has fallen precipitously since 2019, according to the U.S. Federal Reserve’s Diary of Consumer Payment Choice, an annual examination of the way Americans are paying for everything from regular bills to visits to fast-food restaurants.
In 2019, for instance, 26% of payments were in cash. By 2020 that had fallen to 19%, unsurprising given the limited movement of consumers into retailers and restaurants. Yet cash payments have continued to decline in the past couple of years.
In 2023, for instance, cash payments had fallen to 16%.
By contrast, payments made with credit cards have soared, jumping from 24% in 2019 to 27% in 2020. By last year, nearly a third, 32%, of all payments were with a credit card. And nearly two-thirds, 62%, were with either a debit or a credit card.
As consumers returned to in-person visits to restaurants, retailers, gas stations and other companies, they frequently replaced cash with credit or debit cards.
At each of these retailers, the number of transactions per person, per month have returned or exceeded pre-pandemic levels. But use of cash for these transactions remains well below those levels, according to the report.
For instance, at fast-food restaurants, the average American made two cash transactions in 2019, and just more than three non-cash transactions, typically a credit or debit card. By last year, the average was more than four non-cash transactions and just less than 1.5 monthly cash transactions.
Similar patterns can be seen at grocers, convenience stores and general merchandise retailers, according to the study.
“Despite the continued use of cash at these merchants since 2020, it appears unlikely that cash payments will return to pre-pandemic levels,” the study said.
The report will unlikely come as much of a surprise to any restaurant operator that has taken payments from consumers over the past few years. But the results can help guide strategies going forward, particularly when it comes to consumer-facing technology.
More than three-quarters of all payments were made in person last year, but that is down from recent years, and again the pandemic helped move that needle.
In 2019, 87% of all payments made were in person. That fell to 80% the next year. But after briefly increasing in 2021, it has come down again—to 78% last year, according to the report. Online and remote payments have increased from 8% in 2016 to 22% in 2023.
Unsurprisingly, wealthier consumers make more credit payments. Lower-income consumers are more likely to use cash or debit cards.
Among consumers in households with $150,000 or more in income, half of all payments were made with a credit card. Just 18% were with a debit card and 10% used cash.
The percentage of credit declined with income, down to 26% of consumers making $50,000 to $75,000 and just 11% of those making less than $25,000. The percentage of cash, meanwhile, increased as incomes decreased, to 32% of those making less than $25,000.
Middle-income consumers were more likely to use a debit card for their spending. Among those making $50,000 to $75,000, 40% of transactions were with a debit card, 26% used a credit card and 15% used cash.
Older consumers were also more likely to use cash. Among those 55 and older, 22% of transactions were made with cash. Those 25 to 54, however, used cash on just 12% of transactions.
Still, the share of cash transactions has fallen over the years across all age groups.
But consumers for the most part are reluctant to get rid of cash entirely. Indeed, one note from the report is that there is a “floor” on the number of transactions paid with cash.
Cash these days is typically a backup form of payment. While the share of payments made using cash has fallen, the actual number has held steady the past three years. The loss of share was due mostly to increases in the use of credit and debit cards.
For certain transactions, cash remains king. And the amount of cash consumers are holding remains well above pre-pandemic levels. Before 2020, consumers typically held about $60 in cash. By last year, however, that was up to $74.
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