By Jill Jaracz


5 Min. To Read

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Even though credit and debit cards are ubiquitous in today's society, cash has traditionally maintained its position as consumers' favorite method of payment, according to the annual Diary of Consumer Payment Choice (DCPC), put together by the Federal Reserve Banks of Atlanta, Boston, Richmond and San Francisco.

However, after four years of cash leading the pack as a preferred payment method, the fifth edition of the DCPC, published at the end of November, found that debit cards finally eclipsed cash as consumers' most preferred method for payments. Consumers used debit cards for 28 percent of payments and cash for 26 percent of payments. Credit cards stayed in third place, with 23 percent of payments.

The DCPC is a diary-based survey of over 2,800 U.S. adult consumers aged 18 and older. It collects payments information over a three-day period, plus a prediary online survey. The tracking for this edition of the DCPC took place during October 2018.

The DCPC found that consumers made an average of 43 payments during the month, and the value of them was $3,999. On both accounts, this is higher than the previous year's study.

Consumers prefer to use plastic for payments, making over half (54 percent) of their monthly payments (23 payments) with debit cards, credit cards or prepaid cards. Well behind this was paper, a category that includes cash, checks and money orders. Consumers used this payment category 32 percent of the time, or 14 payments. Electronic payments took only eleven percent of usage, and other types of payments, including mobile and peer-to-peer payments, only accounted for four percent of payments.

Even though consumers use payment cards to pay most often, they don't choose to use cards for all of their spending. Other types of payment options give consumers more flexibility for making larger and smaller payments. While consumers may not pay via electronic payment all that often, those payments are much bigger than other transactions, due in part to the fact that electronic bill pay is a convenient option for many consumers. That factor shows in the averages--an electronic payment averaged $303, payment cards averaged $54, and a cash payment averaged $21.

One interesting aspect of this study is the continued popularity of debit cards. In looking at just plastic forms of payment, people do still prefer debit cards to credit cards, with debit card transactions happening 31.2 percent of the time, versus credit cards' 27.5 percent. Both of these numbers increased from the previous year at the expense of cash and check payments, both of which declined.

However, even though credit isn't as popular, it certainly comes in handy when consumers have certain types of purchases that they don't necessarily wanted debited from their bank accounts right away. Larger ticket purchases incentivize them to pull out the credit card more often. The study found this in looking at the average value of a transaction. For credit cards, the average dollar value of a credit card transaction is $50, compared to $39 for debit cards.

Do the Federal Reserve's findings signal the imminent death of paper money? Not likely.

Consumers have an extraordinarily large number of ways in which they can pay for goods and services. While consumers make just one-quarter of payments with cash, a good dozen other options make up the remaining three-quarters of payments, showing the fragmentation of people's options. Cash still has a staying power that other payment forms can't quite top—yet. Although other forms of payment can be more popular than paper money, this study shows it's still a viable and thriving form of payment, especially when the purchase total is relatively small.

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