Cash is no longer king according to Payments Canada. Since 2016, debit cards have become the most widely used method of payment with credit cards coming in second place. Cash usage shrunk by over 9 percent from 2018 and is set to continue the downward trend. So, what does this mean for the business environment? This means that if businesses don’t accept card payments, their consumer base will shrink.
What is replacing cash payments?
It isn’t hard to see why consumers no longer feel the need to carry cash around. Contactless debit transactions are beginning to replace cash. These days, paying for something is as easy as holding your watch over a payment terminal. It’s something that younger generations are normalizing because they trust the security of those transactions much more. The biggest driver behind this change is convenience. It means fewer things to carry around and lose, and fewer things that can get stolen. Exclusively using card payments also means that if those get stolen; the consumer will have the safety net of being able to cancel them before transactions take place. Once cash is gone, there really is no getting it back.
Digital phone payments are also considered the safer alternative to swiping a card since your real card data isn’t used for the transaction (a ‘code’ is generated and acts as a temporary card number for every transaction). Tap payment methods also remove the chance that a tampered-with chip payment terminal clones your card information when you pay. Another reason behind the consumer’s preference for card payments is the rewards they can accumulate using their debit and credit cards. These rewards can vary from flight points to cash back dollars and are a very strong driver behind why consumers see card usage as a better alternative to cash. There are no rewards for using cash, so why wouldn’t they choose to get ‘free stuff’ by using their cards instead?
Why less cash could improve revenues
Consumers aren’t the only ones hesitant to keep cash around, though, businesses are as well. Since cash is a great budgeting tool for consumers, they tend to spend less when using it. A study by the U.S based firm Fundera, found that the average cash transaction was about $22 and the average non-cash transaction was $112 in 2019. Consumers tend to spend more when they use cards, and only really like to pay cash for small transactions. This is only one of the many benefits of reducing cash transactions for businesses. Some of these benefits include: reduced cash handling costs, fewer opportunities for theft, and a reduced likelihood of robberies.
With recent events like the COVID-19 pandemic, businesses have also seen a significant decrease in cash usage by their customers. The idea of handling ‘dirty’ money has spurred on a quicker change toward contactless payments.
Despite the benefits of a cashless system, it is still a difficult choice to make. Governments and banks have concerns over including cash users, and businesses have concerns over network connectivity issues as well as card transaction fees. Considering the benefits and the negative effects of going cashless is important as the world moves toward that future. As a business, it is incredibly important to be able to adapt to the way consumers behave. However, reducing your reliance on cash payments and transactions is one way to do that.
Check out our payments tag for more insights into recent payment trends in Canada.