In these trying times, the chances are that your last purchase was not made with cash. Retailers across the world are moving away from accepting cash payments to minimise the number of contact surfaces between staff and consumers. Some central banks are raising contactless card payment limits and others are simply cleaning bank notes.
This environment isn’t good news for cash payments. Despite scientific evidence suggesting that paper money is not likely to transmit a virus any more than a card terminal or a self-checkout screen, government advice can’t offset the strongest of human emotions, fear. In a world where movement is restricted and packages and hands are sanitised, why take the risk with another possible transmitting surface?
We see this shift towards contactless payments (both with cards and mobile phones) as an acceleration of an already ongoing trend away from cash payments. The biggest change is likely to be a move directly from cash to these newer payment forms, leapfrogging card payments with signatures and PINs, but either way the share of transactions that will involve cash should be in faster decline.
This is good news for the global economy. As we have previously written, cash creates a number of additional frictions in the economy that waste time, money, and enable illicit activities. While there are a number of challenges to overcome – such as providing means of payment to those without access to digital payments and privacy concerns – a move away from cash could help the global economy to run more efficiently in the future.
Some countries are leaders. The reliance on mobile payments in mainland China is credited with helping to limit the spread of COVID-19, while in Northern Europe, notably in Sweden where the app Swish is commonly used, cash payments continue to dwindle. Across the emerging world and some parts of the developed world which have been slower to shift away from cash (notably Japan, Italy and Germany), this shock to public perceptions of cash could accelerate the move in the same direction.
And all of this will reignite discussions around the role of central banks in payments. We expect central bank digital currencies to become an even bigger part of the discussion once this period of uncertainty is behind us.
Cash is unlikely to disappear for good completely, but in a world where human contact is minimised, demand for the alternative is rising – and we may not look back.
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The following analyst(s), economist(s), or strategist(s) who is(are) primarily responsible for this report, including any analyst(s) whose name(s) appear(s) as author of an individual section or sections of the report and any analyst(s) named as the covering analyst(s) of a subsidiary company in a sum-of-the-parts valuation certifies(y) that the opinion(s) on the subject security(ies) or issuer(s), any views or forecasts expressed in the section(s) of which such individual(s) is(are) named as author(s), and any other views or forecasts expressed herein, including any views expressed on the back page of the research report, accurately reflect their personal view(s) and that no part of their compensation was, is or will be directly or indirectly related to the specific recommendation(s) or views contained in this research report: James Pomeroy
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