Debit May Have Dethroned It, but King Cash Retains Its Allure

by Mercator Advisory Group 0

Proponents of electronic transactions frequently proclaim that cash is dead and it is only a matter of time before everything is electronic. During a panel discussion at the Federal Reserve Bank of Chicago’s 2011 Payments Conference, some major merchants had a slightly different view:

Wal-Mart Stores Inc., the world’s largest retailer, and Sears Holdings Corp. gave very limited peeks at their tender trends after Federal Reserve economist Ruth Judson reported that cash usage appears to be on the rise. At Wal-Mart, use of cash, checks, and credit cards has declined since fiscal year 2006, said John Drechny, senior director, Payment Services, with the biggest decline coming in checks. PIN-debit cards, the least expensive general-purpose cards for merchants to accept, are growing fast and are now Wal-Mart’s leading tender type. “PIN debit’s been a great growth vehicle,” say Drechny, who did not reveal volumes or precise payment shares. Regarding credit cards, he said, “The only credit we see growing is our private-label credit card business.”

Although payment network executives love to bash cash as costly to handle and prone to theft, Drechny and Susan Ehrlich, president of Sears Financial Services, have more nuanced attitudes. “Cash has always been a very efficient tender type for us,” said Ehrlich. Added Drechny: “Cash is our lowest-cost tender type.”

At Hoffman Estates, Ill.-based Sears Holding’s Kmart discount stores, customers’ cash usage fell 7% between 2006 and 2010 while checks dipped 40%. PIN-debit usage increased 37%, according to Ehrlich. PIN-debit volume in 2010 was five times that of checks, whereas it was only 50% greater in 2006. At Sears department stores, cash usage is “very steady,” off only about 5% since 2006 while check usage is down 35% and PIN-debit up 75%. Though check volumes are down, check-processing costs are way down, too, thanks to electronic alternatives that include Check 21, the law that facilitates check imaging, and a project Sears began in 2008 with processor First Data Corp., Ehrlich said.

For more information read the article in Digital Transactions:
Click here to read a Mercator report on the topic:
Evolving US Payment Systems and Bank Delivery Channels: Death of the Teller…Again? (Part I)

Graphic from report

Cash is King

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