Peter Drucker wrote “Efficiency is doing things right. Effectiveness is doing the right things.”66 Effectiveness measures whether the actual output meets the desired output. Applied to payment instruments, effectiveness could be measured by the overall volume of transactions, the value of transactions, the rate of failed transactions, etc.
Measuring cash transactions is challenging as they are anonymous and not necessarily registered at individual level. A number of countries have undertaken payment diary studies in order to gain a better understanding of cash usage. A comparison of the results of payment diaries in seven countries are aggregated in the ECB paper Consumer Cash Usage: A Cross-Country Comparison with Payment Diary Survey Data67. The results are summarised on page 49.
In all seven countries, cash is the leading payment instrument measured in terms of transaction volume, well ahead of debit cards and credit cards. The share of cash varies significantly across countries, from 46% in the US to 82% in Austria and Germany. Debit cards are the second most widely used instrument followed by credit cards. In spite of all the hype around ‘new’ payment alternatives including mobile wallets, or virtual currencies, other instruments play a marginal role, with the exception of France where cheques are still widely used, although their volumes are steadily declining.
In value terms, the role of cash is less significant. The data clearly demonstrates that cash is used essentially for low-value transactions. In all countries cash is predominant for the smallest 50% of transactions. In three countries – Australia, Austria and Germany – cash is also the leading instrument overall.
The above study only covers a group of countries with mature payment markets and the results cannot be extrapolated to other markets. However, markets with less sophisticated payment industries are likely to be more cash intensive. According to the MasterCard report Measuring progress toward a cashless society, cash accounts for 85% of transactions worldwide68. The report concludes, “Yet despite this progress, cash today remains the most commonly used method of payment when looked at from a global perspective.”