Fed Report Highlights Shifts in Payment Preferences and Cash Usage Post-Pandemic

The annual Fed report highlighted trends similar to those from previous years but showed some recovery from the COVID-19 pandemic's impact, which had led consumers to avoid contact, reports PaymentsDive. The average number of monthly payments increased to 46 last year, up from 39 in 2022 (and from the 30s since 2019). Despite this, the average number of monthly cash payments remained stable at seven, while credit card transactions rose to 15 from 12 in 2022, and debit card transactions increased to 14 from 11.

"This suggests consumer demand for cash may have reached its current 'floor' given the pandemic's impact and subsequent economic conditions," the report noted. Cash usage varied by age, household income, and other factors. Consumers with household incomes below $25,000 used cash for 32% of their payments, while those with incomes over $100,000 used it in about 11% of cases. People aged 55 and older reported using cash 22% of the time, compared to 12% for those aged 25 to 54 and 14% for those aged 18 to 24.

Last year saw a shift back to a preference for credit cards over debit cards, reversing the higher debit card usage seen during the first two years of the pandemic in 2020 and 2021.

While consumers continued using cash for payments, they held less cash on average in 2023 ($369) compared to 2022 ($418), even as the amount of cash in circulation increased to $2.27 trillion in October 2023.

The increase in online or remote payments, which rose to 22% last year from 19% in 2022, also impacted the proportion of cash transactions, as physical cash can't be used online.

A report by McKinsey last year indicated a global decline in cash usage as digital payments become more widespread. This shift towards digital alternatives was also evident in the Fed report’s statistics on person-to-person payments, with consumers using apps 50% of the time and cash 42% of the time. However, app usage for these payments decreased from 55% in 2022, while cash usage increased from 37%.