5 ways coronavirus has forever changed cash

July 21, 2020 5:00 AM

Before COVID-19, cash usage at the point of sale was already on the decline, prompting a brief clash between retailers and governments over the requirement for cash acceptance. When Amazon launched its cashierless Amazon Go stores that emphasized invisible, digital payments in 2018, other retailers and tech companies — including Albertsons, Standard Cognition and French grocer Casino — quickly followed suit. In China, the concept had already proven to be successful among retailers such as Bingo Box, with more than 300 stores in 30 cities.

In response to what appeared to be a war on cash, state and local legislators across the U.S. responded by passing laws forcing retailers to accept paper currency as a financial inclusion measure.

However, much of that seems to be in the distant past, now with COVID-19 being at the top of everyone’s mind. Unfortunately, that has cast a shadow over the use of cash, which is often perceived as dirty because it frequently changes hands and is almost never washed.

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One unintended consequence of COVID-19 is that U.S. businesses are experiencing a national shortage of coins. This has caused many stores to request exact change from consumers wanting to pay with cash as retailers are having difficulty in sourcing pennies, dimes and other coins.

While the U.S Mint production figures show a steady decline in producing newly minted coins for the last five years, low consumer demand is not necessarily the cause of the coin shortage.

A June press release from the Federal Reserve attributes the decline to increased safety measures meant to protect Mint employees from COVID-19. Additionally, the COVID-19 pandemic has disrupted the supply chain and normal circulation of U.S. coins.

Two key factors leading to a decline in cash usage are the consumer shift to e-commerce as well as the consumer shift to contactless payments when buying in-stores. Based on data from CardFlight’s Small Business Impact Report for the week of June 29-July 5, contactless payment usage in stores has grown by over 100% when compared to the baseline week of March 2-8, which was prior to the COVID-19 national emergency being declared in the U.S.

Similarly, card not present (CNP) usage for the same small businesses covered in the CardFlight report has shown a steady, week-to-week growth since the first week of March. In the most recent week, CNP sales volume was over 23% greater than that during the week of March 2-8.

The sudden surge in online shopping is being experienced in other countries as well, as lockdowns and general fears of contracting COVID-19 have made shopping through digital channels increasingly attractive. According to the U.K.’s Office of National Statistics, internet sales volume represented one-third (32.8%) of total retail sales volume in May. In the past, the winter holidays typically represented the peak of internet sales volume where digital has captured roughly a 21% share of total retail (2019 figures).

The change in internet sales in the U.K. is clearly correlated to its national lockdown, which occurred in March. Internet sales were 18.9% of total retail sales in February, jumping to 22% in March and then 30% in April.

This move away from cash, by consumers and businesses alike, does not sit well with many legislators as they believe the trend unfairly targets certain communities that have few non-cash payment alternatives.

Congress introduced a national bill in 2019 called the Payment Choice Act which "makes it unlawful for a person selling goods or services at retail to (1) refuse to accept U.S. cash for the goods or services, (2) post signs or notices stating that cash payment is unaccepted, or (3) charge a higher price to a customer who pays by cash.”

The national legislative efforts to keep cash alive has picked up bi-partisan support as two senators, Kevin Cramer (R-ND) and Bob Menendez (D-NJ), introduced a similar Payment Choice Act to the Senate in July.

According to data from a Pew Research Trusts survey, unbanked, lower income and minority groups are more likely to be reliant on cash as a primary method of payment. By eliminating cash acceptance, as legislators contend, these specific communities would be unfairly targeted and forced to shop at a more limited set of merchants.

“Moving to a totally cashless society can put people at risk who don’t already have access to banking and financial services. We should be mindful about reducing cash acceptance,” said Maffeo.

In North America, the stage was already being set among small and mid-size businesses (SMBs) to transition to an environment where a reduction in consumer cash usage would have only a limited effect. Based on data from Gartner subsidiary Capterra, most (84%) North American SMBs pre-COVID-19 accepted cashless payments, and many of those that did not were considering adding cashless payments to their acquiring solution set, especially as it related to digital channels.

“We found some clear winners with PayPal and Google Pay as retailers looked to grow their cashless acceptance offerings to consumers,” said Lauren Maffeo, principal analyst at Capterra. “I think it’s interesting when you look at cashless usage around the world. Sweden, for example, has been a leader in driving adoption of cash alternatives while the U.S. has historically lagged behind. The main thing that sticks out to me in this survey is the high adoption of Google Pay among SMBs.”

The transition to card and other cash-alternative payment forms has been greatly aided by the growth in e-commerce and the widespread availability of low-cost acceptance tools from companies such as Square, PayPal and Stripe over the past decade.

Cash withdrawals from ATMs at the beginning of 2020 were already starting out below 2019 and 2018 levels, illustrating a slow but steady decline in paper currency need among U.K. citizens. According to the national LINK ATM network's data, Britons took out about £8.26 billion in February 2020, down from £8.86 billion in the same month in 2019 and £9.29 billion in 2018.

When the country went into a national lockdown in March, cash withdrawals fell to £7.45 billion for the month, when based on previous years’ experiences it normally would have risen. Withdrawals fell to an all-time low in April, reaching just £4.4 billion before starting to climb once again in May and June.

British consumers have not returned pre-COVID-19 cash withdrawal levels. June 2020 cash withdrawals were about 40% below 2019 levels for the same month. A major factor in lowering demand has been a consumer switch to using contactless cards and mobile payments at the point of sale.

U.K. bank NatWest’s small-merchant acquiring unit reported a significant increase in small and medium-sized businesses (SMBs) transitioning from using solely cash to accepting contactless and card payments for the first time. Additionally, Mastercard reported that 78% of its transactions across Europe were contactless by the end May. It was only 2018 when the U.K. market reached a tipping point of 50% of transactions being contactless.