Cash Comes Back: Data Thefts Spur Consumer-Concern-Driven Behavior Changes

It had gotten to the point where we hardly even thought about it: to make a purchase just swipe your card, take your stuff and go.

And then the NSA revelations got a lot of people thinking about whatever it was they were routinely surrendering in terms of personal data. Or not even actively providing but passively giving up through their dependence on electronic transactions.

But when Target, Neimans and other retailers began to reluctantly advise all and sundry that their security systems had been breached and millions of cards had been compromised, something snapped. 

At first the presumption was that consumers would shake it off, realize this was a slight but acceptable risk of doing business and go back to their convenience-driven ways. But as the following article reveals, attitudes have changed. Over a third of Americans polled admit they have tried to use cash more frequently.  And may continue to do so going forward.

The implications are potentially monumental. Banks, merchants and various other purveyors of goods and services make a handsome living off of credit charges, both the cost to the consumer of card usage and the float resulting from unpaid balances. They have even kicked it up a notch: from Google on down, every customer-facing enterprise is attempting to crack the 'electronic wallet' market. They want to own the tangible and intangible infrastructure that makes consumers captives of whichever institution makes their transactional lives as uncomplicated as possible.

So if consumers are cutting electronic credit usage by almost 40 percent, that's a lot of margin lost, to say nothing of upside potential emulsified thanks to a loss of trust. And consumers are doing this despite the hassle and cost of obtaining cash. The upshot may well be that the financial beneficiaries of this way of life are going to have to sacrifice more profit than they had ever imagined necessary in order to restore trust in their reliability - and recapture that lost business, to say nothing of the opportunity they thought was their due. JL

Hilary Stout reports in the New York Times:

37 percent of Americans made an effort to use cash instead of credit or debit cards to pay for purchases as a result of the recent data thefts.

Like dieters vowing to trade cupcakes for carrots, a number of American shoppers are making a new pledge: cash only.

The drumbeat of disclosures about credit and debit card breaches at major retailers (and hints of more to come) has unnerved consumers to the point where chatter online and at the water cooler is filled with people promising to curb their plastic habits.

“This is CRAZY. First my Target card, now this,” wrote Lorraine McCullough on the Michaels Stores Facebook page last week after the arts and crafts chain said that it was investigating whether customer data had been exposed. “I am going to pay cash from now on.”

Similar sentiments poured in.

“Cash! Simple as that.”

“I am carrying cash for now on as well. The good old-fashioned way.”

“Yup, cash is the best way quite honestly.”

With Senate hearings on the recent Target breach and the security of consumer data scheduled for Monday and Tuesday, discussion about what consumers can do on their own is likely to grow even louder.

Shoppers Concerned About Information Security

An AP-GfK poll conducted this January shows widespread public concern about the security of personal and credit card information given out to retailers while shopping.

Overall, how concerned are you about retailers’ ability to keep

your personal information secure when you make purchases in

each of the following ways:

Just a little

or not at all

concerned

Extremely or

very concerned

Somewhat

concerned

27

49%

20

4

IN A STORE

58

13

8

22

ON A WEBSITE

51

19

10

20

USING YOUR MOBILE PHONE

No answer, or do not make

purchases this way

As a result of data breaches such as the one at Target,

have you ever done any of the following?

Yes

41%

Checked your credit report

Made an effort to use cash instead of credit or debit cards to pay

for purchases

37

32

Shopped at different stores

31

Changed any passwords you may have for online retailers’ websites

29

Requested a new credit or debit card number from your bank

18

Signed up for a credit monitoring service

Source: AP-GfK

Figures may not add to 100 percent, because of rounding. The AP-GfK poll was conducted Jan. 17-21, 2014 online among 1,060 adults nationwide.

A poll released last week by The Associated Press and GfK Public Affairs & Corporate Communications found that 37 percent of Americans had made an effort to use cash instead of credit or debit cards to pay for purchases as a result of the recent data thefts — almost as many as those who checked personal credit reports because of the thefts. (Just 29 percent said they had changed passwords or requested new cards.)

Even trying to use cash more often is a strange adjustment for a population that has become accustomed to the convenience of pulling out a little piece of plastic (the better to rack up rewards points) for purchases as small as a Diet Coke. Many people now swipe their cards with so little thought that they don’t even bother getting the receipt. Whereas cards were once reserved for big purchases, they have become acceptable for almost anything, including at formerly all-cash businesses like New York City taxis. More than a quarter of street food vendors now accept plastic, according to a recent study of food trucks and carts by Mobile Cuisine magazine, and 14 percent more say they will soon start.

With a variety of new forms of mobile payments — a television commercial for Chase’s QuickPay service shows how you can pay the teenage babysitter without cash — paper money has almost become an antiquated concept for some people, like a purse of gold coins.

Nicole McNamee of Germantown, Tenn., used a card for almost everything, even the $1 cups of coffee she routinely bought at the local McDonald’s drive-through. Then, last month, she and her husband learned of fraudulent charges — some $1,200 worth of purchases in Minnesota and California, including $400 at a Toys “R” Us on Christmas Eve — on her personal American Express card and a card he uses for his business.

Startled, they decided to follow the lead of some friends and take the pledge: cash only, whenever possible.

“We said, ‘Let’s just give ourselves a dollar value and pay cash for everything,’ ” Ms. McNamee said.

So far, they have found that the shift has had benefits beyond making them feel more secure. Since they can only spend what they have in their wallets, Ms. McNamee noted, “It has indirectly helped us keep on a better budget and save more.”

She starts the week with $100 and, when the money in her wallet is low, has found herself forgoing purchases she wouldn’t have hesitated to buy with a card. She has even come to value the spare pennies, nickels and dimes that she once tossed into random receptacles at home. Now she uses it for that McDonald’s coffee.

Still, despite the talk, no hard data exists to indicate whether significantly more consumers actually are using cash.

“We aren’t releasing that data,” said a Visa spokeswoman in response to a query about whether the company had noticed a recent dip in card use. A MasterCard spokesman declined to comment. An American Express spokeswoman said, “In general, card usage at merchants is in line with seasonal trends we’ve seen in prior years in December and January.” While a number of shoppers have said they are using cash at Target specifically, Target itself would not say whether this is true. “Unfortunately, I don’t have any details on payment types to provide,” a spokeswoman wrote in an email.

Financial advisers and consumer advocates say there are drawbacks to an all-cash existence beyond the nuisance and expense of running to the A.T.M. (A study this year by Tufts University, called “The Cost of Cash in the United States,” found that the average American spends 28 minutes each month, or 5.6 hours a year, traveling to banks or A.T.M.’s to get cash. It found that the average fee to use a non-network A.T.M. is now about $3.85 per transaction.)

For one thing, cash is not an option with online purchases. And vowing to use cash is a knee-jerk response that doesn’t necessarily make sense, some say. Adam Levin, chairman and co-founder of Credit.com and Identity Theft 911, which provides data protection and management services to businesses, said he told himself to use cash when he went to a Target shortly after Christmas. But the truth is, he said, “That is not realistic.”

“Cash has its own drawbacks in terms of possibly being mugged and of keeping track of your expenditures,” said Susan Grant, director of consumer protection at the Consumer Federation of America, an association of consumer organizations around the country. There is also the danger of losing it; Ms. McNamee noted that she has found loose bills in the laundry.

Besides, said Ms. Grant, “You don’t want to be carrying a bag of money into Best Buy to buy a flat-screen TV. People shouldn’t have to resort to that for peace of mind.”

Mr. Levin noted that it was important for people to build up a credit history. Still, he said: “People are right to be terrified about what’s going on with these breaches. I think we have to face facts, that breach unfortunately is the new normal. It’s the new black. It’s just where we’re going. We have to focus on monitoring and damage control.”

Rather than resorting to paying cash, it is more important for people to monitor their bank and card statements every day, he said, and to make sure never to use a debit card for an online purchase. “You’ve got to live your life,” he said, “but you’ve got to add one additional layer of vigilance.”

Already, some of the cash vows are proving to be about as temporary as those no-cupcake pledges. Kenyetta Kelley of Dothan, Ala., had her debit card information stolen after she used the card on Black Friday at Target. (She learned this when she tried to use it at another store soon after and it was declined.)

“I told myself I’m just going to start using cash more,” she said.

That worked well for a week or so. But then a new debit card arrived in the mail.

“When I got the new card, I just felt safe again,” she said. And now she’s back to using it routinely.

“It’s just more convenient,” she said. “I try to keep cash on me but it’s just always gone.”