2020 will likely go down as a watershed year for cash. While recent years have seen disruptive moments such as the Indian demonetisation effort and the explosive growth of electronic payment platforms such as WeChat Pay and Alipay in China, the economic changes brought by Coronavirus (COVID-19) are poised to usher in a new epoch for payments, one which simultaneously entices new users for cashless payments, while creating a more hostile environment for cash payments.
COVID-19 concerns and disruption of the status quo
As COVID-19 began to take root outside China, news headlines trumpeted the potential for cash to serve as a carrier of the virus. Efforts by Chinese authorities to disinfect cash and other nations to quarantine inbound cash contributed to a growing public perception that cash may be unsafe for use – the science on this is heavily contested and it is not immediately clear if cash does present a legitimate threat of contagion. Regardless of the veracity of the claim, governments, businesses, and individuals around the world have increasingly taken steps to limit their exposure to physical currency out of an abundance of caution.
A critical market to track in determining the ultimate effects of COVID-19 on cash usage will be Germany. Notoriously reticent to use card payments, Germans present a clear outlier in Europe, with 26% of all consumer payment transactions in the country conducted in cash in 2019 – against 21% conducted via cards. COVID-19 has prompted a rapid increase in the usage of contactless cards, with surveys suggesting that the number of Germans making use of debit cards has increased markedly during the pandemic. This is a trend that is expected to play out across much of the globe, particularly as consumers become more familiar with payment methods that they may not have frequently used prior to the pandemic.
In addition to behavioural changes brought about by spread concerns, social distancing shutdowns will unfortunately spell the death knell for many small businesses and local service providers. Consolidation under larger corporate brands is likely to winnow out a number of businesses that only accept cash, increasing the usage of card payments throughout economies. Coupled with the rapid uptake of online retailing and delivery services that have amassed new customers as a result of the pandemic, the opportunities for using cash are expected to dwindle in many developed markets.
COVID-19 and the cash legislation clash
Prior to the pandemic, legislative and merchant efforts surrounding cash payments had already begun to clash in various jurisdictions. Some retailers have launched cashless-only operations, which have simply done away with cash acceptance altogether. Meanwhile, several Nordic nations, as well as India, have instituted policy initiatives that aim at easing the transition toward digital payments.
These cashless initiatives have proven controversial in some markets. Legislative backlashes have sprouted amidst the turmoil as cities such as Philadelphia and New York City mandate that merchants must accept cash in their markets. Even among merchants, some have backed away from the cashless-only model amidst criticism. High-profile examples include the US restaurant chain Sweetgreen as well as the Amazon Go cashierless shopping system developed by Amazon.
The contagion concerns prompted by the virus may however serve as a new theatre in the battle over cashless payment models. With local governments increasingly active in mandating business practices to limit the virus spread, it is possible that the push for contactless and card payments will make significant gains in the legislative arena.
Contactless and digital payments at a crossroad
The general upheaval of day-to-day life on much of the globe has also presented a major opportunity for digital and contactless payments. PayPal for example unveiled a new QR code acceptance system for merchants in May 2020 that is reminiscent of the highly successful approach being adopted in parts of Asia. Printing a QR code that allows consumers to pay without any physical interaction is an attractive model in the COVID-19 era and is cheaper than purchasing additional hardware.
COVID-19 also may prove to be a turning point for contactless card and device payments. Many countries have raised the maximum transaction value for contactless payments in the wake of the pandemic. Notably, in the US, where contactless payments adoption has been stubborn, the pandemic offers a significant opportunity for growing usage. Merchants are already focusing significant attention on contactless payment in their stores, educating both consumers and employees on the technology. This awareness or education has been a critical barrier to adoption in the past, as few consumers or cashiers were aware of contactless capabilities. Initial results have been significant, with networks reporting tremendous growth in contactless payments in the first quarter of 2020.
This article was published in our Payment Methods Report 2020, an extensive overview of what’s new in how people pay in the most relevant ecommerce markets.
About Ryan Tuttle
Ryan Tuttle is a Consumer Finance Consultant at Euromonitor International. His work at Euromonitor focuses on global trends and developments in cards, payments, and lending. He has spoken at several industry conferences in recent years, including the Bank Customer Experience Summit in Chicago and the Payments Summit in Phoenix, Arizona.
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