An article in BankingExchange interviews Michael Moebs regarding a recent study where he predicts that cash is poised to take a nosedive and in the next 3 to 5 years and will represent a fraction of the transaction volumes carried out in cash today:
Extrapolating from the Federal Reserve’s Payment Study for 2015, Michael Moebs, economist and CEO of Moebs Services, estimates that by the third quarter of this year, debit cards will be used for 66.3 billion transactions, while 65.9 billion transactions will be in cash.
The Moebs Payment Study predicts that in the next three to five years, less than 20% of transactions will be paid with cash or checks. Payment methods such as credit and debit cards, ACH, and prepaid cards will be used for 80%.
The interview also discusses that the shift in payment types represents a need on the part of financial institutions to look at how payments and payment providers offer services today. Moebs believes the U.S. payment capabilities are lacking in comparison to what is available in other countries and suggests that the best approach is to have a standardized new payments capability that is competitive globally. (An opinion on the Fed’s progress with the faster payments initiative wasn’t offered):
The Federal Reserve also needs to be talking—about how payment preferences are changing and how banks should get their systems in order, in Moebs’ view. The first paragraph of the Federal Reserve charter mentions the need to concentrate on payments systems, Moebs says, yet he found it odd that at the central bank’s recent Annual Economic Symposium in Jackson Hole, no mention was made of the historic occurrence that debit card transactions had exceeded those made with credit and cash.
If the U.S. operated on a standardized payment system that was more efficient and less costly—and the Federal Reserve allowed competition—it would dramatically drive down costs, he says.
The time for banks to make changes is now, Moebs says. “We are so far behind that everybody can catch us in the payment systems—and that’s got to be ended.”
Overview by Sarah Grotta, Director, Debit Advisory Service at Mercator Advisory Group
Read the full story here