Dirty money goes digital

There’s a neighbourhood café that does a particularly good Singapore noodles I’m partial to. Great spices, properly dry, excellent egg noodles, fish cake. But they can be a pain - to pay.

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For years it was cash only meaning sometimes I had to visit the ATM if I wanted noodles. “It’s the banks’ fault,” the owner would say. Last year they started accepting cards - with a 50 cent surcharge, nearly 5 per cent on 11 dollar noodles. “It’s a bank charge,” the owner would say, which it wasn’t.

Now the place is not taking cash.

"Central banks report a large increase in queries from the media on the safety of using cash. The number of internet searches pertaining to both ‘cash’ and ‘virus’ is at record highs.” – Bank for International Settlements

I haven’t had the chance to ask the owner why - the realisation people spend more on cards? A better understanding cash has its associated costs too? A visit from the tax office?

I suspect the answer is more straight-forward: COVID-19.

Cash virus

One of the clear trends as this pandemic saturates our lives is a shift away from cash - both because of fears of direct contamination from notes and coins and also because of social distancing.

According to the Bank for International Settlements (BIS), the global banking authority, this is evident both directly in payments data and indirectly via web searches around cash and disease.

“Central banks report a large increase in queries from the media on the safety of using cash,” the BIS said. “The number of internet searches pertaining to both ‘cash’ and ‘virus’ is at record highs.”

A similar though vastly shallower trend was evident during the H1N1 pandemic of 2009-10.

“Searches appear to be more prevalent where more small-denomination banknotes – the type used for daily transactions – are in circulation relative to gross domestic product (GDP). Overall, Australia, France, Singapore, Switzerland, Ireland, the United Kingdom, Canada, the United States, Jamaica and Kenya have had the highest recent search interest.”

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The concern is legitimate given transmission of the virus is known to occur via common surfaces and in some laboratory tests has survived several days.

The BIS noted “scientific evidence suggests the probability of transmission via banknotes is low when compared with other frequently-touched objects, such as credit card terminals or PIN pads”.

Supporting that view is evidence people are indeed preferring contactless payment to mechanisms where terminals have to be touched or cards handled. In Australia, banks have doubled the amount which can be paid using EFTPOS without using a PIN to $A200.

In New Zealand, a new trial of 200 merchants using contactless payment has kicked off because of COVID-19. The payment method takes an existing Online EFTPOS option, offered by Paymark, which many retailers use for internet purchases, and applies it in-store.

The use of “digital wallets” offered by many institutions as well as phone companies, smart device manufacturers and operating systems have seen a surge in use. March data imply the growth in use over February numbers was more than double.

An underlying trend has been a sharp decline in foot traffic in bank branches as both customers and banks have taken the opportunity to look for and promote alternatives to physical banking.


The shift away from cash is of course a long standing trend but its pace has varied enormously across geographies and cultures. In Japan, as modern as it is, cash was still a staple. Increasingly cashless Singapore still hadn’t overcome the preference for cash in hawker markets.

Yet many undeveloped and emerging economies, notably in Africa, had extremely high digital cash usage as systems had been developed to overcome very poor infrastructure and a lack of basic banking.

Some trends spread by the coronavirus probably won’t endure beyond the acute phase. Eventually physical meetings will – sadly, maybe – return to infest the diary. Pubs and restaurants – joyfully – will reopen for socialising. The payment trend may be more enduring.

To be sure, there has always been an issue around physical currency and hygiene but before COVD-19 it had a very low profile. The attraction of the cash economy may be lower in the future as sanitary standards remain higher.

To a lesser degree, the virus will accelerate the growth of online shopping and ecommerce. Some of that growth may taper but to the extent it doesn’t, digital payment will grow.

The BIS also sees long term trends: “Looking ahead, developments could speed up the shift toward digital payments. This could open a divide in access to payments instruments, which could negatively impact unbanked and older consumers. The pandemic may amplify calls to defend the role of cash - but also calls for central bank digital currencies.”

High denomination

Bucking the trend is data from several sources showing an increase in cash holdings – but this is typically high denomination notes which historically have been hoarded as a store of value or favoured in the black economy.

Near zero and even negative interest rates reduce the penalty of holding physical cash as opposed to investing it elsewhere in the financial system so that also impacts trends.

According to the BIS “data do not yet paint a uniform picture. In the United States, cash in circulation has recently increased. But in the United Kingdom, automated teller machine (ATM) withdrawals have fallen”.

“In the medium term, the outbreak could in principle lead to both higher precautionary holdings of cash by consumers and a structural increase in the use of mobile, card and online payments. These developments may differ across societies, and between different consumers.”

Yet it would be difficult to imagine a scenario in which the already pronounced shift to digital payments, amplified by COVID-19, would reverse after the crisis abates.

This is good news for my noodle vendor: more than once he’s missed sales as I’ve opted for the banh mi at the Vietnamese bakery next door rather than the hassle of going to an ATM. The baker doesn’t surcharge either.

Andrew Cornell is Managing Editor of bluenotes

The views and opinions expressed in this communication are those of the author and may not necessarily state or reflect those of ANZ.

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