The Cost of Cash

The popular saying that “cash is king” celebrates the inclusivity, the privacy and the dependability of physical money. Yet it hides the costs of cash and how it burdens individuals, businesses, banks and governments across all income levels.

This article explores the underlying reasons behind the continued reliance on cash and examines the social and financial costs for all actors involved in an increasingly digital and interconnected landscape.

Continued Reliance

Cash is unlikely to ever disappear entirely. Despite its drawbacks, physical money continues to serve essential functions that ensure its enduring relevance. It is immune to cyber attacks, free from transaction processing fees, offers a high degree of anonymity and helps individuals manage their spending by limiting them to what they physically possess—thus reducing the risk of debt.

Cultural factors also play a significant role in sustaining cash usage. In Mexico, for example, cash remains dominant in terms of transaction volume, despite digital payment options being widely available. This persistence can be attributed, in part, to historical experiences with electronic payment systems and past banking crises, which have fostered a lasting sense of caution and a greater trust in cash among the population.

Cash is often praised for its inherent inclusivity—it requires no software, no bank account, and no formal identification to access or use. This simplicity makes it highly accessible, particularly for individuals who are excluded from formal financial systems. As a result, cash remains the preferred means of exchange in many low-income countries and among economically disadvantaged populations.

While it is often framed as a cost-saving tool for those with modest means—helping them avoid transaction fees or credit-related debt—it also imposes a disproportionate burden on them.

Costs for Individuals

The cash paradox is as follows: while low-income individuals across the world are more likely to rely almost exclusively on cash compared to the other socioeconomic groups, this very fact costs them more than the alternative in terms of safety, of opportunities and also of money.  Globally, up to 27% of unbanked adults cite a lack of funds as the primary reason for not owning a financial account, highlighting a cycle of exclusion where the inability to save digitally reinforces dependence on cash. 

On one hand, although cash cannot be “hacked”, it can just as well be stolen or destroyed. People living in high-crime neighbourhoods where robberies or burglaries are common can fall victim to these crimes, and risk losing their funds in full as there exists no fraud protection nor deposit insurance on cash savings.

On the other hand, only 30% of the lowest-income families in the United States have formal savings accounts, often relying instead on cash savings or checking accounts alone. This limited access to savings vehicles comes with significant opportunity costs—from missing out on interest accumulation and financial planning tools to lacking a safety net in times of crisis.

Those who are completely unbanked—meaning, who do not have access to a financial institution account and services—are excluded not only from the banking system but also from online commerce and any service that requires digital payments, significantly limiting their economic opportunities.

Furthermore, the value of their cash savings depreciates as inflation drives prices up. This disproportionately affects those who face poverty, as they are already more likely to work jobs for wages that are not adjusted for inflation.

Studies additionally found that globally unbanked individuals end up spending four times more money in fees than their counterparts with bank accounts to access their money through alternative financial services.

The Impacts of Digital Money on Individuals

In the developing world, those who benefit from government assistance programs can benefit even more from them when government-to-individual payments are made digitally through direct-deposit. Queuing up to collect payments—as well as traveling to the office—costs time and money. A recipient of the Rwandan Vision Umurenge program (VUP) says most of the money received from the savings and credit union is spent on travelling to get it. 

In addition, banking solutions and other digital services also offer valuable data for budgeting and other insights—those who exclusively use cash miss out on such opportunities to learn more about their spending habits and improve on them thanks to financial education services facilitated by digitalization.

Reliance on cash has the effect of a regressive tax with a disproportionate impact on those of lower-income, and the highest impact on the unbanked.

Costs for Businesses

While many businesses—particularly small enterprises—may prefer only accepting cash to avoid transaction fees or even sidestep taxes, the long-term costs of cash can be significant. While transitioning to digital payment solutions does cost money, both as an initial payment for the necessary equipment and to share a proportion of fees to payment service providers (read about an alternative to this: payment stablecoins), physical money comes with handling costs of its own.

Manifestly, handling cash at the register costs both labour and time, all while exposing businesses to theft and errors, whether this is from an employee mishandling the money or robberies, especially in areas with high crime.

Managing cash transactions also has costs in terms of security and logistics—transporting large sums to the bank or any other safe deposit site can quickly become costly. On one hand, armored trucks’ flat fees are expensive. Small stores end up having to choose between paying more proportionally for securely carrying smaller amounts or and being vulnerable to robberies by carrying their cash to a safe deposit site themselves.

Some restaurants have found that digital payments have allowed them to serve more customers in the same amount of time and increase their revenue, allowing them to offset any card cost.

Additionally,  to compensate for the labour, time, handling and transporting costs of cash, businesses often have to resort to raising their prices, which ultimately affects individual customers themselves.

Costs for Banks

Cash does cost banks as well. They account for between 5 and 10% of bank operating costs, but their absolute costs are rising as well in most markets. This is due to the value of cash in circulation expanding, to fixed costs and to labour costs in the context of financial digitalization.

Importantly, it is expensive for individual commercial banks to install and maintain ATM machines to furnish remote locations with cash, which again, affects already underserved communities and individuals. Logistics and security needs specific to countries of sub-Saharan Africa and Latin America incur additional costs for commercial banks of these regions.

A proposed solution, as highlighted in a McKinsey & Company article, is greater collaboration among banks in order to establish a shared, optimized ATM network—one in which machines are no longer owned or operated by individual banks. This approach is designed to distribute the burden of maintenance while ensuring continued access to essential cash services for all customers.

Costs for Governments

Cash payments are often preferred by many because they leave no paper trail, enabling individuals and businesses to under-report income and reduce their tax obligations in an effort to save money. This represents a significant amount for cash-based economies, leaving governments to plan to create essential programs with fewer funds to leverage. In India, as much as two-thirds of all taxes owed remain unpaid, in great part because of its large shadow economy.

Additionally, transitioning from cash payments to digital payments can reduce fraud—digital payments are used as a strategy for reducing and managing fraud risks in the context of humanitarian crises according to the World Bank.

The costs of maintaining a cash-based economy also impact individuals, as widespread tax underreporting narrows the government’s revenue base. This, in turn, limits the reach and effectiveness of social programs that rely on public funding to serve the broader population.

Why Transition to Digital?

Digital payments address many of the inconveniences associated with cash, offering significant advantages—particularly through mobile payment platforms. Person-to-person transfers are completed much faster, reducing delays and increasing efficiency.

Digital transactions also eliminate the risks tied to carrying physical cash and offer a higher level of everyday convenience. Additionally, because these transactions are automatically recorded, they support better financial recordkeeping, facilitate tax compliance and help individuals build a verifiable financial history—an essential step toward accessing formal credit.

Where EZO Comes In

On the long run, cash is costly, but on the other hand, digital payments can be complex to navigate. Our all-in-one platform is designed to fit all the financial needs of our customers around the world while ensuring high Canadian compliance standards are met.

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Frequently Asked Questions

What Is the Cost of Cash for Individuals?

Individuals who exclusively use cash lose money to inflation as well as in terms of missed opportunities for savings and earned interests.

What Is the Cost of Cash for Banks?

The cost of cash for banks, which accounts for 5% to 10% of bank operating costs, includes the maintenance of ATMs and labour costs.

What Is the Cost of Cash for Businesses?

The cost of cash for businesses stems from handling-related activities, including time spent counting and managing cash, expenses for secure transportation and losses due to theft.