Contactless cards do not (yet) reduce cash demand!

Are recent payment innovations speeding up the proceed to a cashless society? Our study presents causal evidence in the staggered introduction of contactless an atm card with a retail bank. We discover that accessibility contactless payment technology leads to a sizable rise in using an atm card for small-value payments. However, the typical effect on using cash as well as on cash demand is economically small , statistically minor. Our results claim that central banks – in cash-affine countries – may still have serious amounts of prepare for the cashless society.

Tapping a card on the terminal is just about the new normal in lots of regions, particularly because the outbreak from the coronavirus crisis. Performs this payment technology really result in more card payments in “normal” occasions? And can cash therefore become obsolete?

An initial look at the data would strongly favor this kind of interpretation. In just about all developed economies, contactless payments have elevated quickly (already prior to the pandemic) while using cash has declined. It’s tempting to treat this coincidence as causally related. Yet up to now there’s no evidence documenting this payment innovation includes a sizable causal impact on payment choice and funds demand. This really is in no way an insignificant question. First, while consumers may more and more use contactless technology at payment terminals, this might simply replace existing non-contactless card transactions. Second, even when contactless cards boost the final amount of card transactions, the outcome on overall payment volume might be economically irrelevant (given their use for small-value transactions). Thus, the concurrent rise in contactless payments and loss of cash use should reflect a correlation in occasions of broader alterations in consumption and payment behavior.

To review this problem, we examined strictly anonymized banking account data for any random sample of approximately 30,000 customers of the Swiss retail bank. The information cover all card transactions and funds withdrawals between 2015 and 2018. It is really an interesting period, because beginning in 2016, the financial institution folded out contactless an atm card to clients his or her existing cards expired. This setting is really a “natural experiment” that enables us to isolate the causal aftereffect of the brand new payment technology on customers’ payment behavior. The financial institution issues new an atm card at year-finish thus, we’re able to divide the clients into three groups: Early Adopters received a brand new contactless-enabled bank card in the finish of 2016, Late Adopters in the finish of 2017, and Non Adopters limited to the finish of 2018, that is outdoors the observation period (Figure 1). Since the expiry dates are random, the 3 groups are extremely similar in socio-demographic characteristics for example gender, age, and earnings as well as their payment habits and cash demand. Thus, any alternation in behavior after finding the new bank card could be related to the contactless function.

Figure 1. Staggered rollout of contactless an atm card (research design)

A diagram of showing early, late, and non adopters of contactless an atm card

Cash still rules…

Besides the identification from the causal effect, a superb feature in our information is that people can watch consumers’ cash and card use during a period of 4 years. The particular results showcase the significance of cash – inside a complex economy having a well-developed payment card infrastructure. By 2018, nearly all everyday payments by value remained as conducted in cash – although all of the clients within the sample had debit cards. The typical customer visited an ATM three occasions per month to withdraw typically 338 Swiss francs. In comparison, the typical customer compensated only four occasions monthly by bank card to have an average quantity of 70 Swiss francs. Cash was gradually losing ground its value be part of payments fell from 2015 to 2018 by a couple of percentage points annually. But ongoing at this pace, it might take another 35 years for that average Swiss consumer to ditch cash completely.

…but consumers do start tapping

The contactless payment function does lead customers to use their an atm card more frequently. After consumers have the contactless technology, the regularity of bank card point-of-purchase transactions increases by 7% each year. This causal effect almost doubles the popularity increase as identified for that non-adopter group ( 9% each year). Figure 2 implies that the rise in card transactions is clearly associated with time where consumers received a contactless card.

Figure 2. Quantity of bank card transactions at the purpose of purchase by adopter group

A alongside line charts showing Figure 2. Quantity of bank card transactions at the purpose of purchase by adopter group

Note: This figure displays, by treatment group, the monthly average quantity of point-of-purchase bank card transactions having a worth of for the most part 40 CHF (the brink for PIN-exempt transactions). Early adopters received the credit card in 2016q4 late adopters received the credit card in 2017q4 and non-adopters didn’t get a contactless card.

The great majority (75%) of more bank card transactions related to the contactless technology are small-value payments (below 20 CHF). As a result, the causal impact from the contactless technology on the level of bank card transactions is marginal. This means the average aftereffect of the contactless payment technology on consumers’ share of money payments is economically small , statistically minor. Likewise, we discover no average aftereffect of contactless cards on cash demand, that’s, the regularity of money withdrawals or even the average cash withdrawal amount. Our results thus claim that the contactless payment technology boosts the average consumer’s utilization of payment cards. But because the result is targeted in small-value transactions, which begin with a minimal level, the economical impact on cash demand is minimal.

Large variations in payment behavior among clients

We observe substantial variation in payment behavior across consumers: one-quarter from the sample population relied almost solely on cash, while another quarter made their purchases already predominantly by card. The outcome of contactless technology on such groups differs significantly: cash enthusiasts hardly altered their payment behavior, but intermediate users more and more used cashless payments, specifically for a small amount. And who’re individuals contactless card enthusiasts? Not surprisingly, youthful people (below age 35) are more inclined to adopt technology. Their annual trend loss of using funds are seven occasions bigger than that for individuals over age 55. Surprisingly, contactless cards only altered using cash from the youth in urban settings we discover no impact on using cash among youth residing in the countryside.

It may be a lengthy method to a cashless society

Within the last century, we’ve observed major innovations in payment technology, for example charge cards (late 1950s), ATMs (late 1960s), and an atm card (1970s). None of those innovations has asked the way forward for physical money from central banks. However, it’s a broadly held presumption the recent innovations of contactless, mobile, and instant payments will accelerate the proceed to a cashless society. This could pose challenges to central banks which have a mandate to ensure a secure, efficient, and broadly accessible payment system. To counterbalance ongoing payment innovations as well as an expected strong loss of cash demand – as continues to be noticed in Norway, for instance – many central banks are actually contemplating the development of electronic cash substitutes, that’s, central bank digital currencies.

Our results claim that still it may be a way to some cashless society – even if thinking about the trend loss of using cash might accelerate. This conjecture pertains to economies where funds are still much used, like Germany, Europe, Austria, as well as other Countries in europe (European Central Bank, Deutsche Bundesbank, Swiss National Bank). For consumers in countries which are less money affine, such as the Uk, Norway, and Canada, high cash use rates may well be a reminiscence. However, our results also document significant and chronic heterogeneities in payment choice across consumers, which points toward the significance of habit and/or behavior motives. We conjecture that such persistent behavior might also affect specific socio-demographic subgroups (for instance, older cohorts) in countries where cashless payments tend to be more prevalent.

COVID-19 and using cash

Recent data demonstrate that non-cash payments especially contactless payments have elevated strongly and using cash has declined (for instance, Deutsche Bundesbank Ardizzi, Nobili and Rocco Jonker et al., Kraenzlin et al.).1 Although our results do not let us to create evidence-based predictions concerning the impact from the COVID-19 pandemic on payment behavior, they claim that in normal occasions consumers may have perceived the incremental ease of contactless cards as not big enough, typically, to result in large shifts in cash demand. The strong rise in using contactless cards throughout the COVID-19 pandemic could thus be seen as exogenous shock that shifted relative costs and benefits enough to affect money demand (Alvarez and Argente). It remains seen whether these changes are permanent and which categories of consumers altered their behavior.


The findings, interpretations and conclusions presented in the following paragraphs are entirely individuals from the authors and cannot be attributed by any means towards the Oesterreichische Nationalbank or even the Eurosystem.

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