Precautionary Demand for Cash and Perceived Risk of Electronic Payments

We have recently seen two conflicting trends in the use of cash. The share of e-payments in retail transactions is steadily increasing, but the same upward trend is true for the share of cash in circulation or at least the cash share remained unchanged. This paper shows the significance of perceived risk for consumers’ precautionary demand for cash after they make a decision to use e-payments. We use data from a study involving Polish consumers. The main conclusions are as follows: surveyed consumers perceive a level of risk associated with card and mobile payments and continue to carry cash for precautionary reasons. Factors such as the consumer’s mental state, lack of trust in e-payments, and attitude to risk influence the decision to maintain cash reserves, while the consumer’s income and age may be considered the main determinants of the value of the cash reserve. Consequently, the decision to use e-payments does not necessarily mean that the demand for cash drops to zero. A degree of difficult-to-reduce, autonomous demand for cash may exist independent of the traditionally studied determinants, in particular, those related to the transaction demand.