According to a Survey of central banks on the impact of COVID-19 on cash and digital payment policies done by Lipis Advisors, an international consultancy focused exclusively on the payments industry, and Currency Research, a global resource for central banks, the pandemic has limited the ability of consumers to make paper-based payments. Furthermore, since March 2020, consumers have exhibited a preference for contactless payment solutions such as using a card, smartphone or wearable device, and ecommerce transactions have spiked.
How has De Nederlandsche Bank (DNB) acted to promote reliable and efficient payments amidst this unique global health crisis?
In these turbulent times we continue to work together with organisations representing users and providers of payment services to ensure an efficient, secure, reliable, and accessible payment system. We do so within the National Forum on the Payment System (NFPS), which we chair. Through the NFPS we call for banks to maintain enough ATMs, and for retailers to continue accepting cash. It is important that cash remains accessible and is widely accepted, as it remains an indispensable means of payment for certain sections of the population. Cash also serves as a fall back option in case the digital payment system is failing. Thereby, it contributes to the resilience of the entire payment system.
The accelerated pace of digitisation has also increased the need for greater cyber resilience. Together with other central banks and the Dutch Authority for the Financial Markets, we raise awareness of cyber-attacks and also contribute to hack testing to enhance cyber resilience.
Despite the coronavirus crisis, Dutch consumers’ trust in the payment system has remained high. We will keep doing our utmost to preserve this trust.
How has the pandemic influenced payments innovation in the Netherlands?
The pandemic has accelerated the digitisation of payments. The pandemic has boosted online shopping and debit card usage at the point-of-sale. In 2020, for the first time in Dutch history, consumers made more debit card payments than cash payments in all sectors (see the joint study by the Dutch Payments Association and DNB). Of all point-of-sale payments, 79% were made with debit cards, smartphones, or wearables. The largest shifts occurred in traditionally cash-intensive sectors such as street vending and specialty food shops. So nowadays even ice creams are often paid for electronically. The use of contactless payments increased sharply. Most debit card payments (about 80%) are now contactless. Not only the use of cash, but also the traditional use of debit cards – inserting them into payment terminals – fell more sharply than in previous years. Especially during the first lockdown in the spring of 2020, consumers were reluctant to use cash. The probability of getting infected by using cash is, however, very small.
DNB research shows a significant decline in cash usage after the first lockdown started. A substantial part of this shift in payment behaviour is likely to be long-lived, as payment preferences have also shifted. The share of people who prefer to pay contactless by debit card has increased substantially. Prior to the pandemic about three in ten purchases were in cash. Nowadays it is only around one in five. The use of cash has also decreased sharply for person-to-person payments, such as payments to your friends. 2020 was the first year in which most of these payments were made electronically.
Which factor(s) do you think have been most influential in driving this trend?
Two factors were key. First, consumers were encouraged by retailers to use contactless payments more often to avoid coronavirus infection when handing over banknotes and coins. In the early days when little was known in terms of infection, carefulness was key, though quickly it became apparent that handling notes and coins is perfectly safe from a covid perspective as long as hand contact is avoided. Second, banks have taken measures to simplify contactless payments in order to support paying contactless in covid times. They have temporarily increased the transaction and cumulative limits for contactless payments above which consumers need to enter their PIN code to 50 respectively 100 euros.
The international debate on Central Bank Digital Currency (CBDC) is gaining momentum due to CBDCs potential to fully digitalise payments.
Will the COVID-19 pandemic accelerate the launch of central bank digital currency globally?
The accelerated digitisation of payments due to the COVID-19 pandemic has underscored the importance of exploring possibilities for issuing a digital euro. Citizens currently only have access to euro banknotes as central bank money, but in an increasingly digitised world, a digital euro could also be valuable. It could combine the efficiency of digital payment instruments with the safety of central bank money. Moreover, it can prevent us from becoming overly dependent on digital money issued outside the euro area, such as stablecoins, which could have detrimental effects on financial stability and monetary policy.
The digital euro seems to have potential in the Netherlands. DNB research shows that although citizens are very satisfied with current payment options, about half of the Dutch population would be interested in opening a current account for digital euros. Consumers find privacy the most important feature and expect a digital euro to be at minimum on par with the commercial bank services they currently enjoy in terms of safety and ease of use. The fact that central banks – in contrast to commercial banks – do operate on a not-for-profit basis is the most frequently cited reason why consumers believe a digital euro would be useful. Males, young people and highly educated people are, based on this first survey, expected to be frontrunners with regard to opening a current account for digital euros.
Has DNB piloted/tested CBDCs?
We are exploring the possibility of issuing a digital euro. We do this in cooperation with the European Central Bank (ECB) and the other national central banks of euro area countries. The exploration phase of the joint digital euro project, which started end 2020, has focussed on draft designs, learning from technical experiments, performing a public consultation and discussing with stakeholders and partners. As a digital euro can only be successful if it meets user needs, we highly value the opinion of citizens, market participants and other stakeholders. One of the key findings of the Eurosystem report on the public consultation on a digital euro is that both the consulted citizens and professionals find privacy the most important feature of a digital euro, and that they consider integration with current payment solutions to be important. In the context of the joint digital euro project the ECB and the other national central banks in the Eurosystem will continue to study the possibility of the digital euro in the period ahead and decide on further research into the requirements and design of a digital euro by mid-2021.
About Carin van der Cruijsen
About De Nederlandsche Bank (DNB)
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