Is cash no longer king?

Living in London for the past three years, I fully embraced the cashless culture. Paying for meals at an outdoor market, for drinks at the pub or to ride the tube was a fast, secure and seamless process using my phone. While working abroad with businesses of all sizes and in various industries, I also got used to businesses not using checks.

But I never envisioned just how quickly this shift would accelerate when I moved back to the United States just as the coronavirus began to spread. Now, cashless payments are rapidly becoming the norm as the spread of the coronavirus has forced consumers and businesses to change their ways.

But is the change here to stay? In a post-pandemic world, will cash no longer be king?

Before the pandemic, alternative payment methods were already on the rise. Yet they encountered resistance from both traditional financial services companies and consumers who were hesitant to fully embrace digital technologies.

To be sure, there was plenty of talk about the cashless future, as traditional financial service companies cited long-term plans to roll out digital payment solutions. But with most consumers content to pay with cash, many brick and mortar retailers were reluctant to fully make the transition.

Then the coronavirus hit. In February, when most consumers were convinced that the pandemic would be short-lived, app downloads and monthly users from startup digital banks in the United States and Europe were attracting mobile-banking clients at a faster rate than incumbents, Bloomberg reported.

Now, months into the pandemic, many changes previously thought unthinkable have become normal. We’re living a world that is increasingly virtual and cashless as consumers fear the spread of COVID-19.

And it’s not just the startup financial services firms that are on board. The biggest incumbents like Bank of America, Wells Fargo and Chase are reaping the rewards of their significant investments in technology in recent years as customers flock to mobile banking and, by necessity or choice, shun physical bank branches.

The Centers for Disease Control and Prevention have even given their imprimatur on the trend, urging consumers to use cashless payments whenever possible.

Mastercard summarized it well, noting that its latest COVID-19 consumer impact study shows “70% of consumers plan to continue or increase online purchasing” and “60% believe they will use less cash even after the pandemic subsides”.

Moreover, digital /cashless payment providers saw an increase in digital wallet adoption, which is expected to grow 43% annually through 2023, with higher expectations for 2020.

The change is happening across the entire financial services spectrum, and the data tells a powerful story:

Paypal

The online payments company reported the strongest quarter since going public five years ago. The performance, it said, was helped by the “world accelerating from physical to digital across multiple industries.” Paypal added 1.7 million merchants in the second quarter, which is three times the usual number. Paypal transactions grew by 26%, rivaling volumes typically seen between Thanksgiving and Cyber Monday. Paypal check-out experiences grew 40% year-over-year.

Visa

The credit card company has seen an increase in the shift to e-commerce. In June, activity excluding travel was up 12% compared to January. Debit outperformed credit by almost 30 percentage points. Significant growth in debit “shows the acceleration of the secular shift from cash to digital forms of payment.” Visa also reported that spending using cards not present, excluding travel, has grown by more than 25% every week since mid-April, and this represents twice the pre-coronavirus growth rate.

Shopify

Shopify, the web services company, noted a “fundamental shift in how businesses and consumers interact” and notes “the pandemic permanently accelerated the growth of online commerce.” Shopify reported the highest level of gross merchandise value growth since its 2015 initial public offering.

Square

The mobile provider payment company said recently that its Cash App “continued to see mainstream adoption” with more than 30 million active users in June as sellers have had to “navigate an immense amount of uncertainty and challenges.” Square’s results, showing year-over-year gross profit gains of 167%, also tell the story of changing consumer behavior. Square credits its contactless hardware, which it said allowed its sellers to adopt social-distancing measures.

The picture is clear: The performance of digital payment companies is far outstripping the S&P and is showing that consumer behaviors are forever changed.

This is not to say, though, that a cashless society will work for all. The pandemic has highlighted long-standing economic and health inequities. For the underbanked and unbanked, who often have low incomes and do not have access to contactless payment options, cash will remain a life source.

The takeaway

For consumers, what was thought to be a short-lived exogenous event is leading to profound behavioral shifts. Long-term card and mobile payments will be the default way to pay and cash will be used only when absolutely needed. For middle-market businesses, surviving the pandemic means businesses must embrace this change.

For more information on how the coronavirus is affecting midsize businesses, please visit the RSM Coronavirus Resource Center.