Thanks to the pandemic, overall cash use dropped 10% worldwide during 2020, and in Canada, the U.K., France, Norway, Sweden, and Australia, in-store cash payments dropped by more than half. According to a new FIS study, mobile payments are growing faster than even credit card payments. Is this the end for cash? “Today, faced with a global pandemic, digital payments are more pervasive than ever,” Laura Nadler, CFO of Afterpay, told Lifewire via email. “Consumers are going online for everything they need—from clothing and self-care items to groceries. And as retailers and restaurants reopen, merchants are not only discouraging the use of cash, they are encouraging ‘contactless payments’ such as digital wallets on a smartphone and contactless cards.”
Contactless Payments
In the early stages of the COVID pandemic, when we still believed that the virus was spread mostly by touch, dirty cash payments were replaced by card payments. Outside the US, card payments means contactless payments, and these contactless terminals are mostly all compatible with Apple Pay and the like. Even in Germany, where many small stores and restaurants still only accepted cash pre-pandemic, contactless payments have taken over. It’s easy to see why they are so popular. You just wave your phone near the machine, and you’re done. You don’t even have to touch the card-reader’s keypad. And if you’re paying with an Apple Watch, when you don’t have to struggle with Face ID while wearing a mask. The study predicts that this trend will continue. Cash will be used for less than 10% of in-store transactions in the US, and 13% worldwide. Meanwhile, digital wallet payments will account for fully one-third of all purchases worldwide.
Security and Privacy
The best thing about cash is that it is utterly anonymous, virtually untraceable, and never fails thanks to a network outage. If you pay with bills, nobody knows who you are, or what you bought. If you pay with a digital wallet, then every detail of your transaction is logged—the date and time, your location, your identity, and exactly what you paid for. That’s been the case for credit cards since forever, of course, but as we make smaller and smaller purchases electronically, the level of data collected increases. Not all digital wallets are equally secure, either. Apple Pay piggybacks on the credit card payment network, but it generates a unique number and uses that for transactions, instead of your real credit card number (and you can change this number at any time). That trounces card skimmers, and it can also stop stores from tracking your purchases via your payments. Digital wallets can be safer in other ways, too. If your wallet is stolen with $500 cash inside, you’ve lost it all. If your phone is stolen, then you lose no money—although you have lost an $800 phone instead of a $20 wallet. And because you’re probably using a credit card underneath it all, you have some comeback on transactions that turn out to be dodgy.
Inclusion, and the Unbanked
Not everybody can use digital payments, though. Most people these days have a smartphone, but not everyone has a bank account. “For some people, the biggest disadvantage to digital payments is the need for access to banking services,” Cris Carillo, co-founder of Allied Payments, told Lifewire via email. “For this part of the population, the ability to set up a bank account might not be a possibility, leaving them no other option besides making purchases using cash.” In 2019, 7.1 million households were unbanked, and the FDIC found that the main reason for this was that people don’t think they have enough money to open an account. Smartphone apps and digital wallets can help, because they can be used with a small balance, and can be used without a bank. Meanwhile, banks themselves are trying to bridge this gap. “More banks are offering immigrant financial services to people in the USA that do not have a social security number,” says Carillo. “This is a move forward to helping many unbanked individuals find the proper services necessary to establish and begin making digital payments.” Digital wallets are certainly convenient, and if history is a guide, then that convenience will easily outweigh the privacy disadvantages of non-cash payments. Whether that’s a good thing or not, we will have to wait and see. But from the numbers, it seems inevitable that services like Apple Pay will soon be the default payment method for most people.
