14 October 2020
By Roger Jones
roger@TheCork.ie
One thing that’s characterised the coronavirus pandemic seems to be misinformation. First, World Health Organisation said there was nothing to worry about at all. Then it changed its mind. Next, we heard that children couldn’t transmit the virus. Evidence of increased spread with the reopening of schools now seems to rebuke that theory too.
Another hotly debated topic about the transmission of the virus is whether physical cash can carry it. If you’ve done any shopping in the last six months, you’ll probably have seen evidence of a growing distrust in cash. Cashiers around the world frequently display signs stating things like “card payments preferred” or “cash not accepted”. Whilst this has obviously encouraged the use of cashless payments, it seems that such policies are not necessarily grounded in facts.
In this article, we discuss the growth of cashless payments, the science or lack thereof it supporting the abandonment of cash, alternatives to cash, and whether or not we should be hoping to ditch bank notes and coins altogether.
The Science?
Before COVID-19 really reached the West, the narrative that cash was dangerous was developing. In February 2020, news spread that Chinese banks had begun to disinfect and quarantine banknotes. The rationale being that cash can touch many different hands during a short space of time and if some of those folks were infected, cash could be speeding up the transmission of the coronavirus. The World Health Organisation didn’t help matters either. It stated around the time that COVID-19 could indeed be passed on contaminated objects. This only fuelled fears over cash.
As the virus has become more clearly understood in recent months, the advice is that cash isn’t dangerous at all. The World Health Organisation and central banks around the word have stated that cash doesn’t pose any greater risk than any other object and that regular hand washing along with use of disinfecting products would mitigate any risk. However, a report published in August by GoCompare Money showed that a third of British adults still believed cash use to be risky.
Cash Alternatives
So, cash is seemingly no more dangerous than touching the button in an elevator. Yet, that hasn’t stopped other means of payment rising in popularity. There is no shortage of cashless alternatives these days. Since they offer greater convenience than cash (no need to receive change, no need to visit the bank in order to spend), cashless payment methods were already seeing greater usage prior to the pandemic. The coronavirus has only sped this up around the world.
Choosing the correct one is the key
When considering the rise of cashless payments, it’s also important to consider the forced closure of shops, bars, restaurants, and, well, just about every physical place to spend money at. Outside of the supermarket or food stores, commerce has almost exclusively taken place online. Cash payments aren’t well-suited to online retail whereas the alternatives well discuss below certainly are. This is clearly another factor in explaining the rise of cashless transactions.
Cards and Contactless
For many people, the most familiar cashless payment method is the credit or debit card. One of the most recent innovations in card payments is the rise of contactless technology. Given that contact increases the risk of contracting coronavirus, it stands to reason that people would spend more on their contactless cards and less in cash.
Research conducted by PayPoint from May 2020 showed that the use of card payments had increased from spring 2019 to spring 2020. Between the beginning of April to mid-May, the payment service noted that card payments had risen by around 75% compared to the previous year. It also noticed a drop in the use of ATM machines. In early April, cash machine use was down by almost 40% and May saw a decline of around one-third versus 2019.
The company attributes this to both customer’s reluctance to use transact in cash, as well as them being forced to spend a lot more time in doors with less opportunity to spend anywhere other than online.
Ewallets
The growing shift from instore to online payments and fears over the use of cash have also been a boon for non-bank payment companies. The likes of Apple Pay, PayPal, Venmo, Revolut, and others have all seen a growth in usage.
In August, PayPal’s Dan Schulman commented on the company’s own performance in 2020. Having seen growth of around 22% in the second quarter of the year, the CEO stated:
“Across every industry, we’re seeing this surge towards a digital-first strategy.”
Schulman added that the pandemic had made PayPal “more relevant than ever”. Other money transfer applications have also seen large growth too. Research by Apptopia showed that the use of major digital payments applications had risen by nearly 11%. Growth of downloads of these applications suggests that it’s not just existing users favouring such payment methods more frequently. Venmo, Square Cash, PayPal, and others are all attracting new users too.
Cryptocurrencies
Another form of digital payments impacted by the coronavirus is cryptocurrencies. However, not all digital assets have seen the same kind of growth in usage. Some cryptocurrencies are more suited for payments and some are more suited to saving.
Digital representations of government-issued currencies are seeing a spike in spending usage. Over the course of 2020, so-called stablecoins, such as USDT, USDC, and others, have seen increased transactional volume. In fact, the use of such digital payment methods globally has grown from $48.2 billion worth of transactions in May to $54.9 billion.
However, other digital currencies that are tailored towards payments are seeing less of an upswing in usage. Bitcoin Cash (BCH), for example, a version of Bitcoin that some argue has sacrificed security to enable faster and lower cost payments, is still barely used in commerce. Transaction volumes reported by BitInfoCharts shows no real spike in Bitcoin Cash usage over the courage 2020. If anything, spending of Bitcoin Cash has actually fallen since the beginning on the year. This cryptocurrency is still a bit of a mystery but Nodepositkings.com has summarised what you need to know for you.
Ripple offers everything without the complexity of Bitcoin
Similarly, spending of the original and still most popular cryptocurrency, Bitcoin, has actually been dropping but price data of the asset shows that non-spending usage is growing. Although Bitcoin can be used entirely without contact, people are reluctant to spend it. The digital currency is fast emerging as an alternate store-of-value asset and hedge against macroeconomic uncertainty.
Highlighting the feeling that Bitcoin is a form of digital gold of the future is Microstrategy CEO Michael Saylor. Saylor recently converted a huge percentage of his company’s cash balance sheet to Bitcoin.
The CEO claims that holding cash when central banks are printing more money than ever to fund coronavirus relief packages and stimulus efforts is akin to sitting on a melting iceberg. With most of the world’s economy all but grinding to a halt, governments have been spending like never before.
To finance this, banks must create more money, which has an inflationary impact on the value of a currency in circulation. This represents an attack on the purchasing power of an individual’s savings. Saylor explicitly stated on several Bitcoin industry podcasts that his company’s Bitcoin purchases were to hedge against a potentially inflating dollar in the wake of such policies.
Increasingly, people are exploring Bitcoin as a censorship resistant store of value and the economic fallout of the coronavirus only appears to be hastening this. In fact, Square Cash, the payments company of Twitter CEO Jack Dorsey, recently converted part of its own balance sheet to Bitcoin. So too did the Canadian chain restaurant Tahini’s.
Similar to Saylor, the legendary hedge fund manager Paul Tudor Jones revealed his own allocation to Bitcoin earlier this year as well. He justified the move by stating that Bitcoin, as an improved and digital version of gold, represented this generation’s best hedge against coming inflation.
Finally, in terms of cryptocurrency news regarding the coronavirus are central bank-issued digital currencies (CBDC). Whilst many central banks were already exploring the idea of creating a purely digital version of their own currency, 2020 appears to have sped up efforts towards launch. China is known to be pushing its own as soon as possible and efforts to create both a digital euro and US dollar are quickly moving from the debating table and into development. Some experts attribute the speed with which world powers are moving towards a digital version of fiat currency as being inspired directly by the coronavirus.
A Cashless Future?
It’s clear that the coronavirus is changing our relationship with money. Although very convenient for payments, strictly digital options pose their own set of risks for the freedom of an individual. Whilst cash isn’t ideal to pay over long distances, you can make types of payments in notes and coins that are just not possible with centralised payment services.
A future of central bank digital currencies, for example, would allow the government to see exactly what an individual is spending their money on. Many people would argue that those obeying the law would have nothing to fear from such a system but this is a superficial understanding of the implications. Problems arise in draconian nation states that enforce unfair rules in order to control their population.
Even in more democratic societies, spending data is hugely valuable. Big data is already one of the largest industries on the planet despite its relatively short existence. If all payments are digital and overseen by the central government, a record of everything a person has ever bought is hugely valuable to advertisers. It seems a huge leap to presume that an entity possessing such information would opt to protect the privacy of the individual over an opportunity to profit.
