I wrote this article with Al Dingwall, former senior editor at the Asian Development Bank (ADB). It was first published on ADB’s website on 15 July 2020.
As a result of the pandemic, fewer people are using cash and more have moved to a variety of digital payment options. But don’t count cash out yet.
Banknotes and coins have been very visible casualties of the COVID-19 pandemic. Even in India, where cash is still king, ATM use dropped by about half in April. Since the pandemic began, nearly half (46%) of respondents in Asia and the Pacific say they are using cash less often according to a Mastercard survey, a trend that has been replicated throughout the world.
The pandemic has proved to be a trigger event accelerating an already inexorable trend. Cash was used for 87% of payments in the United Kingdom in 1985, but for only 23% in 2019. In urban parts of the People’s Republic of China, use of the two most popular payment services, Alipay and WeChat Pay, was already rocketing before the virus struck. A 2018 study found that 98% of people with smartphones in cities used their devices for mobile payments.
Non-cash payments are still dominated by credit and debit cards issued by banks and other large financial institutions, but there are plenty of disrupter technologies looking to challenge the dominance of Visa (849 million cardholders worldwide) and Mastercard (767 million). If a shopper in Shanghai is likely to reach for WeChat, a Manila diner might buy her meal using GCash, and a New Yorker might buy his coffee by waving his Apple watch at a card reader.
Some of these technologies do more than simply replicate in-store transactions. In the United States, Venmo operates like a digital wallet as well as a social media feed, making peer-to-peer transfers simple — like settling a shared restaurant bill with friends. The app now boasts more than 50 million user accounts, with a net payment volume of $31 billion in the first quarter of 2020 alone.
The move away from cash has been bolstered by two other powerful trends: the rise of online shopping and a striking willingness to trust gadgets. The People’s Republic of China dominates global revenues from online shopping with a projected market volume of $1 trillion in 2020, far higher than the combined total of the next four countries (USA, Japan, UK, and Germany, in that order). Meanwhile, although smartphone sales have levelled off in recent years, there are still more than 3 billion smartphone users worldwide.
Asia is leading the way: the three countries with the most smartphones are the People’s Republic of China, India, and the US, each of which has well over 100 million users. For anyone born this century, performing any sort of action, financial or otherwise, it is likely to seem much more natural using a phone or card than a clumsy, dirty analogue equivalent, such as bills or coins stuffed into a wallet or purse.
Should we worry? Any trend that seems to privilege wealthy city-dwellers at the expense of poor, elderly, or otherwise disadvantaged populations has to be a concern. While headline data from the People’s Republic of China seem to indicate a country that has fully embraced the digital future, 30% of the country’s population does not own a smart phone and is therefore excluded from most forms of electronic payment. Similar groups exist in all countries: 8.4 million US households had no bank account of any kind in 2017.
One of the groups with the most to lose from a cash-less economy is the criminal class. Unfortunately, a move to electronic payment may just end up replacing a more traditional type of criminal, who hides high denomination banknotes under the mattress, with a new technically savvy felon who can hack into an account and siphon out the unfortunate owner’s funds. Here it is worth pointing out that money held in most apps is not insured by such agencies as the Federal Deposit Insurance Corporation in the US or protected by many banking regulations.
Is this the end for cash? After the pandemic, many recently acquired habits will remain, including electronic payments. Even farmers’ markets, usually a cash environment, have increasingly begun to accept electronic payments. New fintech products come to market every month, and poor and marginalized populations will use them if they see an advantage in doing so.
Think of remittances: domestic helpers in Singapore and construction workers in the Persian Gulf have been sending money home electronically using cell phones for over a decade because they find the apps simple and cheap compared with traditional remittance channels charging higher transfer fees.
If cash is on its way out, its departure will be staggered. Some countries, including Finland and the Republic of Korea, have already turned their backs on banknotes (more than half of the Republic of Korea’s 1,600 bank branches no longer accept cash deposits or withdrawals).
In others, a lingering death seems more likely. For cultural, demographic, and economic reasons, cash is deeply embedded in the daily life of some countries. For farmers in Indonesia, vendors in Cambodia or pedicab drivers in Bangladesh, the concept of using an app over cash is still far-fetched. But it is a lot more plausible now than it was before the pandemic.