Is the US Trailing the World on Digital Payments?
There seems to be a growing cacophony of voices supporting the view that ‘cash is dead’ as digital payment systems are the future. To examine that movement, I recently wrote about cash usage trends in the US, looking at the issue from three perspectives: cash in circulation, consumer payment behaviors, and ATM transactions. That article showed that the call that ‘cash is dead’ may be premature, at least in the US. I thought I would look at the question from a more global perspective.
The concept of cash has been around since before recorded history, and the practical use of permanent paper currency for 350 years. In recent years, more experts are predicting the death of cash as digital payments grow more commonplace. Recently, I examined the facts regarding cash usage trends in the US to determine if those calls for the death of cash were accurate. I concluded in that article that those calls might be premature. But what about the rest of the world?
The Facts
One of the main points made about the speed of movement away from cash to digital payments has been that the Covid19 lockdowns accelerated that behavioral shift. YouGov, a 20+ year-old British-based international Internet-based market research and data analytics firm, conducted a survey of 21 countries last year exploring that topic. The survey found that some countries experienced a far larger shift than others.
Pre-Covid, Sweden was leading the way with ¾ of the population saying they didn’t use cash very much pre-Covid. The US placed 4th of these 21 countries studied at 46%, or just under half the population.
This YouGov study examined usage patterns both pre- and post-Covid19. The results paint an interesting picture. Most countries studied show large increases in cash usage during the last year of Covid19. Fully 1/3 of the countries studied saw at least half their populations increase usage of cash. Combining the previous limited cash usage pattern and people shifting more towards cash suggest a global shift to digital is occurring with China leading the way. Only a quarter of the US population reported increased usage of cash though, supporting the idea that the US may be lagging other countries.
ING International Surveys conducted studies of 13 European countries. The latest surveys noted a steady decrease in people paying with cash across many day-to-day spending categories since 2017. This was even though the European Central Bank reporting the value of bank notes and coins in circulation continually increasing in Europe between 2008 and 2017. A reminder that cash in circulation in the US continues to grow at an accelerating pace.
This shift to digital is at least partially caused by countries taking strong steps to force the change. In the United Kingdom, Transport for London stopped accepting cash payments on busses as far back as 2014, and people in Amsterdam experienced a similar shift in March 2018.
Cash remains a common way to pay for smaller amounts in person. The preference for cash when paying for smaller amounts is driven by convenience as shown in many surveys.
With the global lockdown, consumers were forced to buy more things online, which requires a digital payment. Additionally, financial service providers in many countries raised the amount customers can spend by tapping a credit or debit card to encourage movement away from handling physical money.
All these factors have influenced cash usage. Half of those surveyed (48%) agreed with the statement ‘coronavirus has made me more hesitant to use cash’.
Who Will Go Cashless First?
Will a Nordic country be first to go cashless?
In 2016, the governor of the Bank of Finland said it was time to “reappraise the future of cash”. That same year, the Bank of Finland calculated that the use of banknotes in Finland would end by 2029, at the latest.
In 2018, researchers from Stockholm’s Royal Institute of Technology and Copenhagen Business School estimated that half of Swedish merchants would no longer accept cash by 2025.
In 2016, cash made up just one percent of the total value of all payments in Sweden and was used for less than 20 percent of transactions, down by half compared to five years earlier.
In Denmark, falling demand for cash led to the National bank to even stop printing its own money in 2015, choosing to instead outsource this task to a French supplier.
It would be ironic if Sweden, the first country to issue permanent banknotes in 1661, became the first one to go cashless.
In the 2020 McKinsey Global Payments Report, they reported that:
In the first six months of 2020, consumer’s online purchases were up 30 percent from the same period in 2019, or 6 times the annualized 2019 growth rate.
In Europe, differences in shopping behavior among countries and age groups were reduced, as everyone turned to online shopping.
All forms of digital peer-to-peer and consumer-to-business payments have been boosted, but mostly in debit card usage, a logical cash substitute for contact-averse consumers.
Switzerland reported an increase in share of debit-card spending to 72 percent, from 65 percent, between January and May 2020, mostly at the expense of cash.
By the end of 2020, McKinsey research authors expect a shift of four to five percentage points in the share of global payment transactions executed via cash—down from 69 percent in 2019. This is 4-5 times the annual decrease in cash usage the past few years.
Recent reporting on cash usage trends included the following quite from BBVA’s head of US retail, “Cash usage has been on the decline for the better part of the last 25 to 30 years, dating back to the early 90s as popularity of debit cards became mainstream. However, the trend started to accelerate significantly with the introduction of the iPhone and mobile banking and payment applications that made it easier to manage money and conduct cashless transactions. So, up to this point, there have been at least two meaningful inflection points that seem to have hastened the decline in cash usage. Now it seems as though we have another, and perhaps the most significant, accelerator: a global pandemic.”
Resistance Is Strong
Like any movement, there is always some resistance to change. What’s surprising though is where that resistance is coming from. China’s leading the way on all things digital, including payments. It wasn’t too long ago that China was a completely cash-based society. Today 90% of Chinese report cash is less important to them. The Chinese government continues to promote more digital apps for all aspects of life in the country. However, China's push towards creating a cashless society is meeting some resistance from the country's own central bank. In 2020, the People's Bank of China fined 16 public and private organizations for refusing to accept cash payments.
While there are numerous concerns over going completely cashless (e.g., privacy, technology failures, merchant fees, etc.), the primary concern seems to be consistent across the globe… the fear of leaving the poor and the elderly behind.
In a cashless world, payments would be made either through some form of “connected” card or phone. I guess you could include a smart watch too. The “connected” aspect means to connect to a funding source, whether that be a bank deposit account or credit account, or a more temporary prepaid card.
In the US today, about 1 in 20 households don’t have a bank checking or savings account. Those rates are higher in many other countries. According to the World Bank, about 1.7 billion adults were unbanked (i.e., without an account at a financial institution or through a mobile money provider) in 2017, down from 2 billion three years earlier. Four years later the number is likely 1.3-1.4 billion, or about one-in-six people globally.
Various estimates about global smartphone usage show ownership rates of slightly less than half the planet. For any of you out there with an elderly relative who has a smartphone, you know that the devices aren’t always the easiest to learn. Clearly, there are factors that make going full cashless a challenge.
Let’s Recap
There are numerous articles and reports that state a cashless society is just around the corner, and that the Covid19 lockdowns were the final straw for the proverbial camel’s back. The available data doesn’t appear to support that stance, at least in the near future.
In the US and some other countries, cash in circulation is increasing, not decreasing.
Nordic countries appear to be leading the charge to a cashless society and will likely be the guinea pigs for the experience over the next ten years or so. It will be interesting to watch and learn from them.
China has made huge progress in the last decade moving away from cash and in adoption of mobile payments, but even there the country’s Central Bank is pushing back.
All that said, a cashless society is probably inevitable at some point in the future, much like interplanetary travel, or the closure of the last bank branch. It’s not a matter of “if” but “when”.
