The pandemic and its stringent constraints have had dramatic, wide-ranging impacts on how we lead our lives — and money is no exception. It might also forever change how we perform purchases, as we’re already seeing a massive drop in cash-based transactions.
No coin left unturned
Exchanging bits of paper with other people isn’t the safest thing to do during a global pandemic. As such, multiple reports are pointing to the fact that consumers are increasingly relying on digital transactions instead of cash. While this could definitely be just a phase, experts are saying that it’s likely here to stay.
“Over the past six to eight months, we’ve seen the use of cash decline even further, and that’s a trend I think that we’re going to see continue,” said Jodie Kelley, CEO of Electronic Transactions Association, for CNBC last December.
“When the pandemic hit, people really started paying attention to how literally they were spending money and people found that they didn’t want to touch cash and exchange cash.”
Previous data from the Pew Research Center has been reporting on a decline in cash-based transactions over the past few years now. In 2018, for example, they reported that almost one-third of U.S. adults do not make any weekly purchases using cash. This goes to show that it’s not the pandemic alone that’s making people choose other payment methods. Finextra cites data from Statista which shows that cash-based transactions went down from 50.5% of the worldwide total in 2000 to only 14.6% in 2019.
But the threat of COVID-19 is definitely working against cash. A report by financial services corporation Visa states that “tap to pay transactions in everyday segments in the U.S., including grocery and pharmacy, has grown more than 100%” in 2020 compared to 2019 figures, adding that “overall contactless usage in the U.S. [grew by] 150% since March 2019”. Part of this, obviously comes down to people needing to make online payments for various services that they used to perform themselves or have performed in-person — and online payments are easier to do with a card. But it’s doubtful that this shift is the only driver of the drop in cash transactions, especially considering that they’ve been steadily declining in volume even before the pandemic.
Electronic payments are perceived as safer than cash-based transactions as they don’t require in-person interactions, don’t require direct contact, and can be performed from the comfort of your living room, which is a great plus in a quarantine. They’re also perceived as being safer than physical money, and governments also like them because they’re easier to track (making for lower levels of fraud and evasion).
This shift has also caused some unexpected issues. Last year in August, the U.S. Mint released a statement asking for the public to help getting “coins moving by using exact change when making purchases, taking your coins to financial institutions, or turning them in for cash at coin recycling kiosks”.
Still, the same document hints to what is, perhaps, the biggest driver of the move away from cold, hard cash: “remember to follow all health and safety guidelines when you are out spending or recycling your coins”, it cautions.
But this begs the obvious question: will cash make a comeback? Keeping in mind that trying to predict the future is one of the easiest and most sure-fire ways to prove yourself wrong — so take this with a grain of salt — I’m leaning towards ‘no’. The advantages of digital payments are very attractive in the interconnected, fast-paced world most of us here live in. A lot of time, money, and effort has already been spent to tailor our economic systems for such transactions during quarantines, and it’s hard to believe that they will be allowed to go to waste, or rolled back.
There’s also the growing popularity of cryptocurrencies, which only exist in the digital realm. Platforms such as Immediate Edge are also trying to make them more accessible more easily for the public, and this trend will probably continue in the future. They do have the potential to replace some cash-based transactions, although cryptocurrencies aren’t exactly practical for everyday purchases right now. Here, it depends on how well and how fast such currencies catch on with everyday people.
The pandemic and the measures implemented against it are the biggest wild card in this equation. We’re likely to see a sharp increase in the number of cash-based transactions when things get ‘back to normal’ — although right now, we don’t know when that will be or exactly how back to normal it would be. Most likely, we’ll see wide-ranging relaxation of emergency measures once different states or regions reach a safe level of public immunity against the virus. In other words, when vaccination campaigns are successfully completed, which we assume will happen by late 2021, or early 2022. Fingers crossed.
I personally also think we’re going to see some long-term changes in the social sphere even after the pandemic is defeated. We’ve all been through this last year-and-almost-a-half, and we’ve all learned to wash our hands, wear a mask, fistbump instead of shaking hands, eye every public surface suspiciously, and hide our anxiety when somebody on the same railway cart as us coughs. We’re probably not going to go back to living and interacting the exact same way we did before the pandemic. In regards to cash transactions specifically, the end of the pandemic will likely be marked by a sharp increase in volume, but these will probably not reach pre-pandemic levels. People will be delighted they’re free to go to out for a haircut and see a movie again, and some will pay in cash. But the memory of the pandemic will still be fresh so most will probably pay by card.
However, I don’t think cash is out for good. The fact is that cash is the most reliable form of payment out there — it works in a blackout, it works in rustic backwaters with no point-of-sale terminals. It’s also very hard to track, so people who are concerned with their privacy will still want to have cash as an option. A harder-to-swallow truth is that cash is also the fuel that keeps black markets going, so as long as people will engage in less than legal activities such as drug dealing, there will be voices advocating for the preservation of cash as a means of payment.
All things considered, I doubt that the pandemic killed cash money. But I do think it severely impacted how often it is used. This will most likely become the norm in the future; electronic payments will probably make up the bulk of transactions, with cash being a more niche option that’s used here and there. This process would have likely taken place even in the absence of the pandemic or a similar event, simply as a consequence of how large, diverse, and fast-moving our markets have become, but COVID-19 definitely did help speed it along.