Cash losing out to digital payments

Cash losing out to digital payments

From cash to cards to contactless, these days, payments are all up in the air

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28th November, 2021

Collecting the drinks, the young American woman at the bar held out her arm. Flummoxed, the barman gave her a fist pump. No, I want to pay with my watch, she said. It sounds absurd now, but this scene was related to this writer by a relative and occurred just a few years ago. Payments have certainly come a long way in recent years.

In fact, it wasn’t so terribly long ago that credit card payments required signing a receipt with a pen and online debit card payments were close to impossible as Ireland had its own debit card system that no other country joined. Today, Visa and Mastercard dominate, online services including Square, Stripe, PayPal and Worldpay are common, Google Wallet and Apple Pay are supported by a dizzying array of devices, and neo-banks such as Revolut and N26 are used by many for discretionary payments.

Ireland is not quite the leader of the pack when it comes to digital payments, but nor is it a laggard. According to European Central Bank (ECB) statistics published in July this year, in 2020 the total number of non-cash payments made in person in the euro area increased by 3.7 per cent to 101.6 billion and the total value increased by 8.7 per cent to €167.3 trillion.

For its part, the Central Bank of Ireland said the total value of payment transactions increased by 52 per cent in 2020. Even France, where cheque books are still a necessity (yes, really), has seen massive growth in card and contactless (taken together, use has doubled since 2016), but Banque de France figures indicate that cash remains king, accounting for 59 per cent of payments in 2019, versus 24 per cent for cards and 3 per cent for all other payment methods from cheques to mobile wallets.

Hard figures are not yet available for 2020, but Covid, of course, is expected to be a factor, with 39 per cent of French residents reporting they have reduced their use of cash since the pandemic began.

Famously cash-heavy due to an aversion to credit, even Germany has seen cash payments drop from 74 per cent in 2017 to 60 per cent last year. Thirty per cent of in-person transactions were via card, according to the Bundesbank. Still, baby steps: compare this to Sweden, where many shops simply have no cash-handling facilities at all.

According to Lorraine Higgins, secretary general of Digital Business Ireland, the much-heralded end of cash has been a major topic of discussion over the last 18 months. While it still seems that physical cash is unlikely to disappear, the rapid growth in the popularity of contactless payments indicates consumer trends are shifting.

“For businesses, having contactless payment functionality has become an absolute necessity. What might have been viewed as a ‘perk’ for consumers in previous years, has now become a core part of the customer experience,” she said.

The question now is: will plastic cards disappear before cash, much as CDs have declined more to a lower status than vinyl even as streaming has become the predominant method for listening to music.

“While there is no indication to suggest that device payments will fully replace physical cards, the enhanced customer experience offered by m-commerce is likely to prove increasingly popular among consumers,” Higgins said.

While initially the product of an increasingly digitalised economy, the Covid-19 pandemic has undoubtedly accelerated the demand for cashless payments.

Higgins said that while initially the product of an increasingly digitised economy, the Covid-19 pandemic has undoubtedly accelerated the demand for cashless payments. This tallies with reports from Europe’s central banks, all of which note at least a cohort of people wanting to minimise their exposure to the virus, even if some of us who happen to enjoy human contact bristle at the proliferation of QR codes and automated checkouts.

Making long-term predictions is a mug’s game, but in the short to medium term, even as the pandemic – hopefully – fades into memory, card, contactless and device-based payment is likely to become ingrained.

“Without a doubt, Covid-19 accelerated the digitalisation of our economy – and it is highly unlikely that we will see consumers return to their pre-pandemic habits. Prior to the onset of Covid-19 we had witnessed a natural transition towards contactless payments and m-commerce. However, it is now fair to say that consumers have grown somewhat accustomed to the convenience offered to them by this technology, and as a result will continue to further these trends in the years ahead,” Higgins said.

Interesting times, no doubt. In the end, though, in most cases it doesn’t matter what form the ‘cash’ in your pocket takes. What matters is how much you have.

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