The COVID-19 pandemic has dramatically changed many of the ways consumers shop and pay for goods these days.
A new report by FIS, a leading provider of technology solutions for merchants, banks, and capital markets firms globally, says there has been a decline in the use of cash in Canada, which halved in 2020 and is expected to drop to just four percent of in-store payments by 2024.
Dan Brames, Executive Vice-President of North America Merchant Solutions at FIS, said there has been a rise in the use of digital wallets as a means for online purchasing, growing faster than any other form of payment.
Also, buy now, pay later services are rising by 78 percent, accounting for 1.6 percent of e-commerce spending.
Part of the decline in cash is due to COVID-19 pandemic.
“But setting that aside, even without COVID, obviously we were starting to see less use of cash whether that’s in the U.S., Canada, the UK — pick your geography. And some of those like the UK are further ahead than even North America. It’s predominantly due to a population now that is becoming more of the buyers of goods that are more comfortable with currencies other than cash — in other words contactless and mobile payments,” said Brames.
“If you look at the acceptance whether that’s online or whether that’s at point of sale, the acceptance of the technology is finally catching up. So it’s not that probably consumers haven’t always wanted to use something other than cash but now it’s so darn convenient, it’s so widely accepted that I think we’re starting to see the catch up effect, if you will, of the acceptance of technology.”
COVID’s impact on the use of cash is due to some people not wanting to handle physical money for fear of perhaps being exposed to the virus. Also, some stores were not accepting cash during the past year for health and safety reasons.
The increase of the money limit that could be used for contactless payment has also had an impact on the growth in that use.
“COVID was good in the respect that it accelerated a lot of the use of the technology that had always been there, it’s just maybe there wasn’t a strong of a use case now coming out of COVID,” explained Brames.
The increasing use of technology in paying for goods is also good news for retailers and restaurants as people tend to spend more money than they would if they were using cash.
“Psychologically the idea of laying down cash versus using credit or debit is different. So you’ve got a lot more of what we would call ticket lift where people have the ability and probably will spend more than they would if they were laying down the hard cash,” said Brames.
The annual Global Payments Report by Worldpay from FIS examined current and future payment trends across 41 countries. Findings from the 2021 report show that lockdowns, shelter-in-place orders, and personal safety measures during the global health crisis accelerated the shift toward digital payment methods in every area of consumer spending.
Some key findings from the report include:
- Use of mobile wallets exceeded cash for in-store payments for the first time. Globally, cash usage dropped 10 percentage points in 2020 to account for just one-fifth of all in-store payments, behind credit cards (22 percent of in-store payments), debit cards (22 percent) and mobile wallets (26 percent);
- Use of cash for in-store payments fell by half or more in Canada, the U.K., France, Norway, Sweden, and Australia;
- The report projects that by 2024, cash will account for less than 10 percent of in-store payments in the U.S. and just 13 percent of payments worldwide. Over that same time period, the report projects digital wallet payments to account for more than a third (33 percent) of all in-store payments (16 percent in the U.S.);
- Total e-commerce spending grew globally 19 percent last year to $4.6 trillion in value. That growth was the highest in the past five years and represented two-to-three years of typical acceleration in a single year. Analysis shows global e-commerce spending could grow to $7.3 trillion by 2024; and
- Usage of digital wallets (45 percent) eclipsed credit cards (23 percent) for the largest share of e-commerce transactions. The growth of digital wallet-based transactions for e-commerce transactions in 2020 equated to three years’ worth of growth in a single year.
“Our new research shows that the world is entering a new phase of adoption of digital payment methods,” said Jim Johnson, Head of Merchant Solutions at FIS. “The global pandemic has brought a cashless future closer on the horizon. The implications for merchants are profound. They must be building technology-centric strategies to meet the diverse preferences of consumers’ rapidly changing habits and do so in a way that drives financial inclusion for underserved communities around the world.
“For those businesses that are savvy enough to embrace smarter commerce and invest, the growth opportunities will be huge and potentially game-changing.”