Our cash-free future is getting closer
Coronavirus fears accelerate contactless payments worldwide
PARIS — On a typical Sunday, patrons at Julien Cornu’s cheese shop used to load up on Camembert and chevre for the week, with about half the customers digging into their pockets for euro notes and coins.
But in the era of the coronavirus, cash is no longer a la mode at La Fromagerie, as socialdistancing requirements and concerns over hygiene prompt nearly everyone who walks through his door to pay with plastic.
“People are using cards and contactless payments because they don’t want to have to touch anything,” Cornu said as a line of mask-wearing shoppers stood 3 feet apart before approaching the register and swiping contactless cards over a reader.
While cash is still accepted, even older shoppers — his toughest clientele when it comes to adopting digital habits — are voluntarily making the switch.
Cash was already being edged out in many countries as urban consumers paid increasingly with apps and cards for even the smallest purchases. But the coronavirus is accelerating a shift toward a cashless future, raising new calculations for merchants and enriching the digital payments industry.
Fears over transmission of the disease have compelled consumers to rethink how they shop and pay. Retailers and restaurants are favoring clicks over cash to reduce exposure for employees.
China’s central bank sterilized bank notes in regions affected by the virus. And governments from India to Kenya to Sweden, as well as the United Nations, are promoting cashless payments in the name of public health.
“Time to swap your coins for payment cards — safer for containing coronavirus,” Valdis Dombrovskis, the European Commission vice president for financial services, wrote on Twitter
as Europe imposed quarantines.
Cash is certainly not dead. Before the pandemic, bills and coins were used for 80% of the transactions in Europe, and there are few signs that the pandemic is about to wipe it out.
Yet for a growing number of people sensitized by COVID-19 quarantines, cash is a fading routine.
“We’re living through an amazing global social experiment that is forcing governments, businesses and consumers to rethink their operating models and norms for social interactions,” said Morten Jorgensen, director of RBR, based in London, a consulting firm specializing in banking technology, cards and payments.
“We have a world in which there is less contact. People’s habits are changing as we speak.”
Those dynamics are creating a golden moment for credit card companies, banks and digital platforms, which are capitalizing on the crisis to advance the cashless revolution by encouraging consumers and retailers to use cards and smartphone apps that yield lucrative fees.
In Britain alone, retailers paid 1.3 billion pounds (about $1.7 billion) in third-party fees in 2018, up 70 million pounds from the year before, according to the British Retail Consortium.
Payment and processing companies such as PayPal (whose stock is up about 55% this year) and Adyen, based in the Netherlands (up 72%), also stand to gain. So do data analytics and fraud prevention companies, and businesses that enable merchants to accept card payments.
Propelling the trend is a surge in online shopping as homebound consumers turn to digital tools for basic items.
In the United States, 40 million customers went online for groceries in April. In Italy, where cash is king, the volume of ecommerce transactions has surged more than 80%, according to McKinsey & Co.
Credit card issuers are keeping the momentum rolling by working with banks and governments to lift ceilings on contactless payments that allow shoppers to avoid touching a keypad.
Limits as low as 20 euros (about $23), originally intended to prevent thieves from being able to buy large amounts with a stolen or hacked card, were raised to 50 euros or more in France and other countries during quarantine, enticing shoppers to increase the number and value of their purchases.
Visa reported a surge in contactless payments for basic items in Britain after limits there were lifted and a 100% increase from a year ago in the U.S. Visa said it had also worked with governments in Greece, Ireland, Malta, Poland and Turkey to raise contactless payment limits in those countries.
Card companies do not divulge fee earnings, but Jorgensen at RBR said issuers were probably raking in a handsome profit.
The European Commission capped interchange fees in Europe last year at 0.2% of a transaction for debit cards and 0.3% for credit after a legal battle with Visa and Mastercard. But the rising volume of swipes helps compensate for the shortfall, he said.
There is no medical evidence that cash transmits the virus. Nonetheless, “perceptions that cash could spread pathogens may change payment behavior by users and firms,” the Bank for International Settlements said in a recent study on the effect of COVID-19 on cash use.
Authorities that manage the world’s currencies say the dangers of going fully cashless are rife. In tech-forward Sweden, cash has been disappearing so fast that parliament and the central bank asked commercial banks to keep bills and coins circulating while they figure out what a cash-free future would mean.
Consumer groups warn that vulnerable people risk being marginalized. Many low-income earners and retirees, as well as some immigrants and people with disabilities, have little or no access to electronic payments and are increasingly shut out as banks cut back on ATMs and customer service.