The culture of cash

The COVID-19 pandemic has driven a shift from physical payments like cash to electronic ones – particularly “socially distant” mechanisms like tap’n’go.

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But even before COVID-19 the use of cash as a means of payment was in decline. Over a week in late 2019 the Reserve Bank of Australia (RBA) Consumer Payments Survey recorded the details of every transaction made by 1100 respondents. Overall, the survey showed Australians were continuing to switch to electronic payment methods, in preference to cash.

"In March 2020 the use of digital payments was far greater than the total for the previous peak shopping month of December 2019.”

Cash made up only 10 per cent of all the value of consumer payments in a typical week and around over a third of respondents were not using cash at all. The other analogue payment mechanism – cheques - are in even more rapid decline with a number of New Zealand banks having flagged their phasing out over the next year.

Contactless technology has encouraged the growth in low-value card payments, the use of mobile devices for payments has grown and there has been growth both in online shopping and automatic payments, such as ride sharing aps (paid for via previously stored payment card details).

COVID-19 has accelerated the shift to cashless payments in Australia with fears coins and notes might be carriers of this infectious disease. Data from MasterCard and Visa show in March 2020 the use of digital payments was far greater than the total for the previous peak shopping month of December 2019.

This will only increase as in April 2020 the limit on contactless transactions was raised from $A100 to $A200.

International phenomenon

Research from Roy Morgan adds Australians are now increasingly using non-bank contactless mobile payment services compared with 2019.

The Digital Payments Report indicates 11 per cent of Australians use options like Apple Pay and Google Pay, up from 7 per cent in 2019.

The decline of cash use for payments is not just an Australian phenomenon. Encouraged by a similar rise in the contactless limit from 30 pounds to 45 pounds in the UK, cash usage halved in just a few days following the Government’s imposition of a nationwide lockdown on freedom of movement.

Again there were contamination fears from banknotes, as consumers shied away from devices such as ATMs that require manual keying. By the end of April 2020, ATM withdrawals in the UK had fallen by 60 per cent during the lockdown.

This has wide implications for banks, retailers and travel operators, as millions of daily transactions such as ATMs, chip and pin terminals, self-service checkouts and ticket machines, all rely on touching technology – even if the fear is disproportionate.

Scientific evidence on handling cash from the Bank of International Settlement (BIS) suggests the risk of COVID-19 being transmitted is low compared with other frequently touched objects, such as PIN pads.

In some instances, Central Banks are sterilising or quarantining banknotes and the Bank of Canada is asking retailers to not go cashless. In Australia, the Royal Australian Mint declared “there is no evidence that either cash or coins spread COVID-19” and ATM service suppliers claim cash is sanitised with ultraviolet light, disinfectant sprays and stored for up to two days, to ensure it is free of contamination.

Cash in circulation

Besides its role as a payment mechanism, cash also acts as a ‘store of value’ and many people keep cash in their purse or wallet and at home just in case. According to the RBA’s Consumer Payments Survey, the median amount of cash people hold on their person is $A30. Nearly 40 per cent of respondents held cash outside of their purse or wallet for ‘precautionary’ purposes, particularly emergency transactions and issues related to the convenience and accessibility of cash.

Needless to say, these survey results considerably underreport the use of cash in the so-called black economy where cash is favoured for anonymity and harder traceability.

In some areas of the world, the value of cash in circulation has actually increased during the current pandemic. For example, the European Central Bank (ECB) reported that in the four weeks to April 10 2020, the value of Euro banknotes distributed rose by €41.2 billion to reach a total in circulation of €1.33 trillion. This was the biggest increase in cash in circulation in the eurozone since the 2008 Global Financial Crisis.

It seems many people in Europe have responded to this pandemic by hoarding cash. In some European countries, where cash is still the main way to pay in many shops and cafes, consumers responded to concerns about the virus by withdrawing extra cash from their savings.

For example, in Germany, roughly 75 per cent of transactions in shops are usually carried out in cash. According to the ECB study, a third of all cash in circulation in the euro zone is kept by households as a safe asset for ‘rainy day’ purposes.

Culturally speaking, Germans allegedly have an aptitude to save and a natural instinct to hoard banknotes in a crisis. Combined with their aversion to being in debt this helps explain the deep attachment to cash many Germans have.

These cultural factors are not confined to Europe. Japan also has a vibrant cash economy, based on strong social codes, personified by fear of being seen to be paying at a point of sale with a payment card. This is perceived by others at the checkout that you are in debt, almost a cardinal sin in Japan.

In the United States, the Bank of America has seen an increase in the demand for paper money. In its view, cash demand has increased significantly, because as a security and bearer of value, it is perceived by the person in the street to be a safe haven.

Ironically for a country often at the forefront of technological innovation and the home of payments system behemoths MasterCard and Visa, American has many citizens who are unbanked, in that they do not have a bank account.

Cash infrastructure

This cultural reliance on older payment mechanisms is being brought to attention by the delivery channels being used to distribute the current American stimulus package, called the Economic Impact Payments. Americans who qualify will receive a maximum of $US1200 and an estimated 175 million people are expected to get this payment.

However, only 88 million have so far received their payments from the Internal Revenue Service (IRS), mainly via direct deposit through their bank. For those many millions with no direct deposit facility, their payment is being sent via paper “checks” in the mail. The IRS expects to send 5 million paper checks per week, issued in reverse ‘adjusted gross income’ order, which means sending out payments for the lowest incomes first. The IRS estimates that it could take up to 20 weeks for everyone eligible for a check, to receive one in the mail.

Culture is not just geographically defined. The ability to use cash is very important for many people, in many countries. Disadvantaged groups, such as those with disabilities, low incomes, the elderly and those who live in rural communities without constant access to phone or internet services, all rely heavily on cash as a means of payment.

As the pandemic accelerates a shift away from cash there are concerns the cash infrastructure which underpins it may eventually wither away. If this were to happen, a wide range of people would effectively be excluded from participating in the consumption of goods and services, as they would neither have the ability or the mechanisms to make payments.

So, the message to all those who have a vested interest in moving further towards a cashless society is, ’be careful what you wish for’.

Steve Worthington is a Professor at Swinburne University Business School

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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