Sounding Board: Cashing out

The spate of data breaches has consumers rethinking their payment methods. There is a hot new payment system that is immune to data breaches, has a simple and foolproof customer interface and requires no hardware or software upgrades—it is called cash. This may sound somewhat facetious and it certainly would not be the first time I was accused of needing an attitude adjustment. However, in the wake of massive data breaches at Supervalu, Target and now Home Depot—one of the largest cyber attacks to date—consumers are feeling increasingly insecure and perhaps a tiny bit paranoid about the continuing assault on the sensitive financial and personal data held in their debit and credit cards. Who can blame them? In September rescator.cc, which has been described as the “Amazon of the black market” released a bunch of stolen credit card numbers that were guaranteed valid and would cost purchasers anywhere from $50 to $100 per card. Additionally, a January 2014 study by the Pew Research Center found that 18% of adults have had personal information stolen through credit or debit card breaches. Are greenbacks the answer? Realistically, and barring some apocalyptic event, most consumers have gone too far down the technological rabbit hole to return to cash in a big way, especially for high-ticket items. However, we are approaching a digital divide. With nearly one out of every five people having been hacked, cash is seen as the safest form of payment. In fact, after the Target incident a survey by Forbes magazine found that 32% of consumers planned to use cash more often. Another survey estimated that the number of consumers using cash is 37%. This is likely to remain steady and perhaps increase, until EMV chip technology is in broader use and proves it can adequately protect consumer data. This could slow the move to mobile payment technology. Clearly, using cash is a big adjustment for a population that has been seduced by the convenience of credit and debit cards. What would be the impact on retail? If someone withdraws $100 for weekly expenses, they might be inclined to limit purchases or eliminate certain purchases entirely if they run low. How do you think this would affect incremental buying at supermarkets? Additionally, cash could also become the preferred alternative among lower income consumers who cannot afford or are unable to obtain access to credit or debit cards. At present, about 55% of consumers with household incomes less than $25,000 per year prefer cash over non-cash payment instruments, according to studies. Meanwhile, a survey by Balance Innovations, a Kansas-based payment services firm for retailers, found that only 30% of shoppers aged 50-64 said they were very confident about using a credit card at their primary grocery store. Younger shoppers (18-24) were more trusting, at 48%. However, 46% of younger shoppers also say they plan to use cash more often. It is interesting to note that the demographic often referred to as digital natives seem reluctant to use the technology they were born into. Of course as anyone in retailing knows, what consumers say they will do and what they actually do are two different things. But it is also interesting to think about what all this cash talk will mean to online sales. Whatever the demographic, there is always a danger of losing sales if people are not carrying enough cash on their person. The question is what to do? Some have suggested giving cash customers a discount, similar to some gas stations. But will this really get them to spend more per trip or are you simply running the risk of alienating credit and debit shoppers. On the upside, retailers doing cash transactions could avoid payment processing fees for credit and debit purchases which run on average from 1.3% to 1.9% of purchases. On the other hand, statistics indicate that the average value of a cash transaction is only $21, compared with $168 for checks and $44 for debit cards. So, after all this and the prospect that hackers have and will always be a step ahead of the game, what will it be—paper or plastic? Len Lewis, a regular Grocery Headquarters columnist is a veteran industry journalist, commentator and editorial director of Lewis Communications, Inc. He is the author of The Trader Joe’s Adventure- Turning a Unique Approach to business into a Retail and Cultural Phenomenon. He can be reached at [email protected]. or at www.lenlewiscommunications.com.