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Who's Winning the War on Cash?

Is cash still king? In the world of global payments, not so much anymore. Cash usage is at an all-time low giving way to the transformation to card/digital. According to the latest Nilson report, cash made up less than 20% of US payment volume in 2019 (by total reportable $ value), and is forecasted to fall to less than 15% by 2023. The demise of cash is one of the trends that has been in place for decades but has been accelerated by circumstances arising from COVID-19. The ability for card payments to now be administered in a contactless manner via ‘tap-to-pay’ has been a useful tool for consumers that want to avoid contact at the checkout aisle. Pair this with most consumer spending shifting to Ecommerce channels during quarantine and the demise of cash has been expedited.

The scale of the large pure-play payment networks, Visa and Mastercard, is staggering. Visa alone processes over 160 billion transactions per year totaling trillions of dollars in network spend. It may seem trivial to us as consumers to just swipe at checkout or place an online order using our debit/credit card but the logistics of what goes on behind the scenes is astonishing. The ability to instantly connect millions of cardholders to thousands of banks and merchants in 200+ countries is almost an impossible network to replicate. This decreased payment friction has also allowed cards to be used for smaller purchases that were once dominated by cash. Consumers in the past were hesitant to use their credit/debit cards on small ticket purchases but with the increased convenience of today's payment mediums that is no longer the case. 

Convenience and speed has also opened up a whole new market for the digital payment networks. For many years non-cash payments were primarily a business-to-consumer dynamic. Today fintech companies such as Venmo and Cashapp have moved digital payments into the peer-to-peer market. Many consumers no longer even carry cash in their wallet.  

The trend runway remains long as other countries, particularly emerging markets, are starting to follow the same path as the US. Although cash isn't disappearing for good anytime soon, we think the rise of non-cash payments is one of the COVID-19 trends that will be here to stay even after the virus is behind us.

 

 

Commentary Disclosures: Covington Investment Advisors, Inc. prepared this material for informational purposes only and is not an offer or solicitation to buy or sell. The information provided is for general guidance and is not a personal recommendation for any particular investor or client and does not take into account the financial, investment or other objectives or needs of a particular investor or client. Clients and investors should consider other factors in making their investment decision while taking into account the current market environment.

Covington Investment Advisors, Inc. uses reasonable efforts to obtain information from sources which it believes to be reliable. Any comments and opinions made in this correspondence are subject to change without notice. Past performance is no indication of future results.

 

 

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Covington Investment Advisors, Inc.
301 E. Main Street
Ligonier, PA 15658
Phone: 724-238-0151
Fax: 724-238-0148
Email: covington@covingtoninvestment.com