The Target Target data breach continue to send aftershocks through the retail industry. Confidence in debit and credit card transactions has declined, and consumers are looking to more secure forms of payment. Along with generating some interest in alternative currencies like Bitcoin, data is emerging that shows old-fashioned cash is being used more frequently in stores (grocers in particular), than it was before the breach. And the trend has only just begun.
It hasn’t helped that debit/credit card and personal data has also been reported stolen from Michael’s, Neiman-Marcus, Sally Beauty Supply and kickstarter.com. Plus, there’s the mother of all “oopses:” An Experian Experian-owned database holding a stunning 200 million consumer records was cracked by a Vietnamese identity theft ring.
In a survey of 1,488 grocery shoppers conducted in February that was sponsored by software technology vendor Balance Innovations, only 39% of respondents reported they were “very confident” in the safety of using debit and credit cards.
As we might expect, concern was more likely to be voiced by older shoppers, with only 30% of survey respondents aged 50-64 saying they were very confident, vs. 48% of those 18-24 years old. Still, when a majority of the youngest primary family shoppers are either somewhat confident or not confident at all in credit/debit safety, we have a definitive trend. These consumers are supposed to be digital natives. And even they’re concerned.
Those concerns are creating a new reality. Cash transactions are on the rise. Just how much are they rising? Let’s take a look at the survey respondents. Thirty-two percent reported they would be using cash as a method of payment more frequently. Ninety-five percent of survey respondents heard of the Target data breach. More surprising, even though those youngest shoppers claim to be the most confident in credit/debit, their stated plans seem to tell a different story: 46 percent plan to use cash more, a higher percent than any other age group.
This tells us where we’re going, but hasn’t provided context into where we’ve been. Another study conducted in 2013, also underwritten by Balance Innovations in partnership with the National Grocers Association, helps put pre-breach trends in perspective. At that time, credit and debit made up more than 60 percent of total dollar sales, while cash was used most frequently (38.2 percent of total transactions). In other words, cash had become the realm of low dollar value transactions. That is changing. And there’s no doubt that it has also proven to be a setback for the already slow-starting mobile payment space. If a consumer isn’t comfortable swiping her credit card, the notion of “beaconing” her payment through the air isn’t going to be more soothing and confidence-building. And it doesn’t seem like conversations around the “better mousetrap” of chip-and-pin technology are resonating anywhere outside the confines of technology corridors.
There’s good news and bad news for both retailers and shoppers in the growing use of cash. On the one hand, retailers don’t have to pay a fee for cash transactions. On the other hand, it costs more to manage cash in the store: it’s big and bulky and must be handled by humans at least once. And by its very nature it is hard to trace if it’s stolen.
On the other hand, retailers pay real money in processing fees for credit and debit card transactions. According to the 2013 study, the average cost of processing a credit card transaction is 1.9% of the sale, while the average cost of processing a debit card transaction is 1.3%. That might not sound like a lot, but in the grocery business, where average gross margins are below 10%, that’s a major bite out of profits.
I’m not predicting the death of the credit card. What I am saying is that consumers are upset. And the ones that are upset are the ones we’d be least likely to expect it from — young people. Cash is back, at least for now, and shoppers will wait for retailers and other data collectors to prove they can keep their data safe before they ratchet up use of their cards or other “new-fangled” payment types that require the consumers’ trust.