Bank of Israel Warns of Digital Payment Shift Impact on Cash Users

The Bank of Israel has identified a growing trend where the increasing popularity of digital wallets, despite a decline in cash transactions, is leading to a paradox: the total amount of cash in circulation has reached 134.7 billion shekels. While digital payment methods are rapidly gaining traction, a significant portion of the population remains reliant on physical currency. An analytical review by the Bank of Israel, as reported by Israelinfo, indicates a nearly tenfold increase in weekly digital wallet usage among Israelis, from 5% in 2019 to a projected 47% by 2025. Concurrently, regular cash usage has dropped from 80% to 48%. Notably, digital wallets are more frequently replacing bank cards than cash. Approximately half of respondents reported using their smartphones instead of physical cards, while only a quarter reduced their cash usage. Despite these shifts, the volume of banknotes and coins in circulation has continued to rise, now representing about 6.4% of Israel's GDP. This increase was particularly pronounced during the COVID-19 pandemic, with a 21% surge in cash demand in one year. Looking ahead, about 70% of Israelis intend to continue using cash, a figure that has remained stable. Cash preference varies significantly by income level and demographic group. In the Arab sector, approximately 75% of purchase amounts are paid in cash, compared to 29% among ultra-Orthodox Jews and 15% among secular Jews. Low-income households use cash for 57% of their expenses, while middle-income and high-income families use it for 27% and 14%, respectively. Cash remains popular for small transactions, accounting for 63% of payments under 10 shekels and about half of those under 50 shekels. Many Israelis cite cash usage as a tool for controlling expenses, with 40% believing it helps manage household budgets more effectively. Security concerns also drive cash preference, with 70% believing a cash reserve is necessary for technical failures or cyberattacks, and 41% citing the threat of war or economic crisis. However, the Bank of Israel warns that a continued decline in cash transactions could make it less profitable for banks and private operators to maintain cash infrastructure, potentially leading to fewer ATMs and higher fees. Currently, about 6,550 of Israel's 9,150 ATMs are operated by private entities, often charging higher fees and not offering deposit services. The bank fears this could disproportionately affect the elderly, low-income families, and those who prefer cash, potentially forcing them onto digital payments against their will.