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Beyond the Transaction: Every Transaction Has a Story

The Fletcher School Examines Cost of Cash in the United States

  Ben Mazzotta, Ph.D. is a Postdoctoral Research Fellow, Center for Emerging Market Enterprises, The Fletcher School at Tufts University

How do people use cash? Does the way that they use cash ultimately affect their costs, and how?

The Center for Emerging Market Enterprises has a yearlong research project spanning consumers, merchants and financial institutions, entitled The Cost of Cash in the United States. Our study looks at patterns of cash use and the frictions of cash on a total-cost-of-ownership basis.

Cash without a doubt has virtues: nearly universal acceptance, zero startup costs, no annual fee, and no downtime. These benefits come with tradeoffs: higher costs and risks for savings, borrowing, payments, and insurance. Still, mobile money and would-be cash killers haven’t quite been able to replicate cash’s key virtues: privacy, budget discipline, and transferability.

We are studying which costs and risks scale with cash use: transaction fees, security risks, logistics and shoe leather costs. Preliminary findings suggest a few important drivers of cash costs. Consumers show a huge generational gap in cash balances. Merchants have taken on the challenges of POS cash back, while the number of ATMs nationally has declined slightly for the first time in decades. Depository institutions are outsourcing cash processing and insourcing Fed deposits, largely out of sight but with potentially big impacts on expenses. Unbanked and underbanked consumers effectively have a heavier asset allocation in cash, while facing higher prices for expensive à-la-carte financial services.

We also held an on-campus contest, the Cashless vs. Cardless Smackdown, during which students gave up either cash or cards for a week in April and blogged their experiences.

We are excited to engage in a discussion of the future of cash with MasterCard executives and David Wolman.