Tap and go: how Covid-19 took the gloss off cash

Have you heard the one about the cashless society? Like the paperless office – feasible.

After years of modernisation in the debit card business and the advent of digital wallets such as Apple Pay and Google Pay, it has ended up being Covid-19 that spurred the sharpest shift away from notes and coins.

It’s not just the anecdotal evidence of people worrying about the risk of coronavirus lingering on much-handled cash or acquaintances reporting they still have the same €20 folded up in their purse since March. The stats are in to say cash is out – or at least it was at the height of the pandemic.

All methods of spending went into sharp decline in the early part of the lockdown as consumers limited their outlays to essential groceries, but the drop in ATM withdrawals outpaced the decline in card spending, suggesting that when people did go to the shops, they were turning to non-cash methods of payment where possible.

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In April, the value of ATM withdrawals was almost 58 per cent lower than it was in the same month last year, according to Central Bank data. Card expenditure (excluding ATM withdrawals) fell 27 per cent and was dragged down by a fall in credit card spending in particular.

Being stuck at home during the Covid-19 emergency did not exactly prompt a surge in online shopping in April: e-commerce spending fell 4 per cent that month compared with April 2019. However, e-commerce, which by definition can be performed only by non-cash methods, accounted for a record 49 per cent share of all retail card spending during that month, up from an average of 39 per cent last year.

At a very basic level, people have not wanted to put their fingertips to high-touch surfaces such as cash machine keypads

We have had less opportunity to spend the money in our wallets and we have felt nervous about the possible infection risk of exchanging notes and change with till operators, whipping out our cards instead.

We have also taken fewer chances to replenish our cash, weakening the habit of going to the ATM. The average ATM withdrawal amount was “elevated” throughout April and May compared with historical averages, with the Central Bank noting that this indicates people are “continuing to concentrate their cash withdrawals into a small number of ATM visits”.

This is unsurprising given most people were limiting their journeys outside the home and did not want to vary their lockdown routines. For some consumers, the nearest cash machine may not be outdoors where there is space for a socially distanced queue, but one squeezed into a corner of a shop. Even if they had hand sanitiser at the ready, an ATM visit will have seemed like an unnecessary extension to indoor retail time. At a very basic level, people have not wanted to put their fingertips to high-touch surfaces such as cash machine keypads.

So, are consumers saving themselves on bank charges by avoiding the ATM? Possibly, though that depends on what method of payment they are using instead.

The first thing to note is that independent operators of ATMs in the Republic do not themselves charge for withdrawals, as they do in other countries, as long as the withdrawal is in euro. This might change in the future, however, especially if ATM usage wanes over the longer term, as operators seek to turn a profit.

The banks have of late recently been itching to sell off more of their ATMs to independent operators. These companies are not constrained by any Central Bank pricing regulation should they make a late move to add their own charges into the mix.

The more we move in the direction of a cash-free society, the greater the likelihood that “free cash withdrawals” from ATMs will become harder to find.

Normal current account charges already apply no matter what machine is used. And, on a per-transaction basis, the main current account providers charge their customers more for cash withdrawals than they charge for non-contactless, point-of-sale debit card transactions.

At Bank of Ireland, the transaction charge is 25 cent for an ATM withdrawal and 10 cent for chip and PIN debit card purchases, though these don't apply if customers maintain their balance above €3,000 throughout the fee quarter.

AIB charges 35 cent for an ATM withdrawal and 20 cent for a chip and PIN debit card transaction, though charges can – for now – be avoided if accountholders keep their balance above €2,500 throughout the quarter. Ulster Bank also charges 35 cent for an ATM withdrawal and 20 cent for a chip and PIN debit card transaction, while its balance threshold for waived transaction fees is €3,000.

Despite the higher charge for ATM withdrawals, if an accountholder withdraws a relatively large sum from their current accounts and uses it to make several cash transactions, it will obviously be cheaper than using the debit card with chip and PIN on each occasion.

Using a credit card and then clearing the balance each month to avoid interest on the debt is one method of avoiding transaction charges. The catch here is that the Government levies €30 stamp duty every year on active credit card accounts: the charge is normally automatically applied to accounts on April 1st, though this year the collection of the charge was deferred until July 1st.

Contactless payments are – again, only for now – another way to swerve charges, as banks are trying to encourage their greater use. Ulster Bank charges 1 cent for contactless transactions. In March, Bank of Ireland temporarily waived its 1 cent charge, saying it recognised that contactless was "the safest and most practical solution" for customers, while AIB suspended its plan to introduce a 1 cent charge at the end of May – it also decided to hold off on planned removal of fee-free accounts for customers who maintain their balance at a minimum of €2,500.

Before the crisis, there was an upper limit of €30 on contactless transactions, but this has since increased to €50 in most shops – including Tesco, which wasn't able to update its 4,600 terminals straight away – as part of the official industry push to facilitate a less tactile and ostensibly more hygienic shopping experience.

This tips the balance further away from cash. In the last quarter of 2018, the average ATM withdrawal was about €133, according to the Banking & Payments Federation Ireland (BPFI). Why pay up to 35 cent for the pleasure when debit cards can – currently – be used without charge up to a limit of €50?

As shops reopen this week under social distancing conditions and fast food restaurants extend their drive-thru piloting schemes, several larger chains are saying they will accept cash, but “encourage” contactless payment, while as Ireland emerges from lockdown, “cards only” has become a common sight in the windows of cafes and restaurants open for takeaway.

The BPFI's latest payments study, conducted by Coyne Research in the last week of April, found that cards were more likely than cash to be chosen as the preferred means of payment in various physical shopping locations.

When shopping for groceries for instance, 37 per cent indicated card with PIN was the preferred method of payment and 26 per cent said contactless, just one percentage point behind the 27 per cent who chose cash.

In the presumably hypothetical scenario (for now) of a meal in a restaurant, only 29 per cent indicated a preference for cash, with 21 per cent preferring contactless methods and 42 per cent saying card with PIN was their number one method of payment.

Contactless had been widely adopted across the generations

The size range of the typical transactions in various scenarios obviously has some bearing on payment options and preferences, but even in cafes, cash was cited by less than half of respondents as their payment method, with contactless, chosen by 33 per cent, doing some serious catching-up. Indeed, pre-crisis, the best way to mark yourself out as someone too old to be a millennial in certain cafes was to hand over cash rather than tap.

The BPFI-commissioned research showed that contactless had been widely adopted across the generations. Some 89 per cent of the 1,000 adults surveyed had tapped, with little difference between the age groups: 92 per cent of millennials had used contactless compared with 87 per cent for baby boomers. However, 9 per cent of Generation Z (18-24-year-olds in this research) claimed to never use cash, compared with 6 per cent among other age groups.

Generation Z and millennials (defined as 25-37-year-olds) were more likely to be using smartphone payments in shops than other cohorts: 73 per cent of Generation Z and 61 per cent of millennials have done so, but this drops to 44 per cent for Generation X and 23 per cent for Baby Boomers.

Take-up of digital wallets like Apple Pay and Google Pay overall may be constrained by the fact that Bank of Ireland does not yet offer it, although it has indicated it will do so in 2020. However, as with other forms of non-cash payment, there is evidence that usage of digital wallets has increased during the crisis.

AIB data, compiled from more than 1 million debit card transactions in the first two weeks of April, suggested that Irish consumers were spending 30 per cent more per contactless debit card transaction. However, average spending among Apple Pay and Google Pay users was up 41 per cent and 45 per cent respectively as they made use of their higher transaction limits compared with contactless cards and sought to avoid unnecessary interactions in shops.

Among the under-25s, Apple Pay and Google Pay was accounting for 37 per cent share of all in-store transactions. While the average value of transactions among older groups also rose throughout the crisis, the usage of digital wallets was coming from a much lower base.

Even among relatively youthful 25-34 year-olds, adoption has been much less widespread to date, with digital wallet transactions accounting for a mere 7 per cent of total in-store spending by this group. So there is still some way to go.

The question yet to be answered is whether consumers will gladly revert to their old approaches to payment once Covid-19 fears subside or if these new habits will stick.