Home » A differentiator in payments: how cash remains king in an economic downturn
Chirag Patel, President of Digital Wallets, Paysafe
Many households are revising their spending habits and finding new ways to manage their money effectively as the cost-of-living crisis continues to squeeze finances. Amid this backdrop, cash continues to be critical. In this article, we explore why cash is the go-to option for customers and discuss how merchants can offer payment options that customers demand and be a driver of financial inclusion.
The cost-of-living concern
2022 was a turbulent year with a host of destabilising factors — the continuing war in Ukraine, surging inflation, sharp interest rate rises and the risk of recession. As a result, consumers are feeling economic hardship.
The price of everything from gas to electricity to toilet paper and milk is rising, moving inflation rates to one of the highest observed for over 40 years. Meanwhile, the Bank of England has been hiking interest rates to combat inflation – currently at 3.5%, a 14-year high[i]. This affects all sorts of credit, such as mortgages, bank loans, and credit card payments.
While the biggest fall in living standards since the mid-1950s is being observed[ii], many forecasters suggest we won’t see the end of the cost-of-living crisis until the latter half of 2023.
Cash makes a comeback
In this climate, and as they look to spend less, consumers are turning to cash to help as a trusted way of managing their finances.
A report from Money.co.uk suggests that 42% of UK consumers[iii] use cash to keep track of spending and 65% said they spend more when using their card or contactless payment device rather than cash. Research by the UK Post Office[iv] looking into the record 20% increase in cash deposits between 2021 and 2022 revealed that the majority of consumers said this was to help them stick to their budgets. This suggests that consumers are using cash to keep tabs on their spending in a world where they might lose track through tapping to pay.
Paysafe’s Lost in Transaction research in 2022 also supports this finding. 26% of consumers[i] in our survey who said they’d changed their payment habits because of the rising costs are now using eCash more often.
The role of digital cash in driving inclusivity
Looking from a broader perspective, access to cash is essential for many consumers. A report from the UK government[vi] estimates that around 5.4 million adults rely on cash to a very great or great extent in their daily lives. Another report from the consumer group Which?[vii] suggests that with the closure of banks and ATMs and the increasingly cashless nature of businesses, many consumers are at risk of being financially excluded.
As the data suggests, maintaining access to cash is essential, and part of this is about providing the option to make cash payments online as easily as it is to do offline. Merchants have a significant role to play here by offering a payment option for consumers who want to spend cash. Whether that’s consumers who exclusively use cash because they don’t have access to credit or a bank account or who increasingly opt for spending cash online for security reasons, or simply a matter of preference, merchants must cater to all tastes. And they are gradually acknowledging this. Paysafe’s survey among small and medium-sized businesses (SMBs) in 2022 suggests that 42% of online SMBs were offering eCash options at their online checkout in 2022, up from 29% in 2021.
Additionally, our latest study among 11,000 consumers[viii] shows that 47% say they’d prefer to pay for online purchases in cash if it were easy, and 44% would buy online more often if they could pay in cash.
Merchants react to the shifting landscape
Embedding cash into digital payments is vital for many reasons. It helps people control their budgets effectively as they try to beat the cost-of-living crisis. It also provides a trusted way to pay for consumers who value data protection and security and do not want to share their financial information online. Furthermore, it increases financial inclusion by allowing everyone to access the products and services they need, regardless of their credit history. This reduces inequality in society by ensuring that everyone can be a part of the online economy.
As customers’ payment preferences evolve, merchants should be evolving too, so as not to miss out on potential new customers as well as risk losing existing ones. With the appetite for cash-based solutions increasing, merchants should be taking this opportunity to offer a more inclusive checkout service which serves a growing customer segment of people who prefer to pay with cash.