Why cash is no longer a king in a touchless payment society

By Dan Good, VP of Entrust Datacard

There is a stigma around cash that it is not the cleanest payment method. Despite the introduction of new plastic polymer notes that according to Bank of England are “cleaner since their smoother surfaces are resistant to dirt and moisture”, people are increasingly shying away from cash payments, especially in light of the Covid-19 pandemic.

On the same note, health authorities around the world are pointing out that coronavirus and other germs can be transmitted not only through physical money but also from pay pads at the point of sale. And shoppers are concerned.

This has led to increased use of contactless tap and go credit and debit cards, as well as mobile payment methods like Apple Pay. The contactless limit for in-store spending increased from £30 to £45 from 1 April as retailers worked to cut the need for physical contact in shops amid the pandemic.

According to the UK Finance data published in April 2020, there were 1.6 billion debit transactions with 97 million cardholders compared to 284 million credit card transactions with 65 million cardholders. Contactless transactions grew 13.6% from Jan 2019 to 2020 indicating a strong shift to touch-free transactions.

The freedom and protection of the credit card

The increased use of cards versus cash is not only beneficial to physical health, but also financial health. By using credit cards consumers have more flexibility to manage their own monthly and yearly budgets. In addition, credit cards are also being viewed as a much safer payment option when purchasing larger goods or buying holiday packages and making reservations.

Credit cards are really the core of the payment market – they serve as the critical identity credential when making online purchases. As an example, people are using the unique CVV number on the back of the card for most online transactions around the world today.

Combatting the loss of the small business customer

Regulatory factors play a key role in increased card acceptance in Europe. According to RBR, the number of outlets which accept cards is forecast to grow at an average of 8% per year between the end of 2017 and the end of 2023 to reach 111.7 million. But not all businesses win from the digital payment options. The cost to retailers for the use of credit and debit cards causes additional expenditures for small businesses. Keeping such costs manageable is important for smaller retailers.

However, cardholders throughout Europe increasingly want to use their cards for low-value payments. So smaller merchants who do not accept cards have customers walking out the door when they discover that the shop does not take payment cards, or requires a minimum spend to use the card.

But increasing payment card use benefits small businesses – card transactions enable customers to spend more in the shop, and contactless transactions are speedy, which helps shop owners to serve more customers, quickly. In the long run, accepting contactless card transactions proves valuable as more customers are able to drop in for small purchases throughout the week.

Contactless and virus free payments

ABI Research recently reported COVID-19 is driving up the use of contactless payment cards, predicting a 6%-8% increase over earlier predictions. This growth is driven by both the hygiene and ease of use of touchless “tap and go” payment cards at the point of sale. Such payments are now accepted at the vast majority of Europe’s terminals. This was partially driven by Visa and Mastercard’s mandate that European terminals be contactless-enabled by 2020.

Due to the pandemic, national and local authorities, as well as merchants, are actively encouraging card or digital payments instead of cash. They are also highly recommending contactless payments to prevent any contact with items that are used or touched by multiple people. Recent Mastercard study shows that customers also prefer to use cards as 46% have swapped out their top of wallet card to one that offers contactless payment. The number rises to 52% for those under age 35.

New technologies like biometrics and dynamic CVV are adding higher levels of authentication, which allows banks to increase spending limits on contactless cards – and these have already started to penetrate the market.

In other words, the trend toward cards over cash is likely to continue to grow.