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Farewell notes


Pecunia non olet (“money doesn’t stink”) said the ancient Romans, but then, the coronavirus was unknown to them. Now, if you offer the lady in the baker’s a ten euro note, or carefully count out the change and lay it on the counter, she’s unlikely to let her enthusiasm get the better of her. Money may not stink – but it could transmit the virus, could it not?

Curiously enough, it is this same lady who in the days before the pandemic was most likely to refuse your offer to settle a payment of 2.99 euro without cash; yet nowadays, for even the smallest sums, contactless card or mobile phone payment is readily accepted. Has something changed in the field of payment processing or is this a purely subjective observation in troubled times?

Slow but steady
In Germany, there has for some time now been a trend towards a wide variety of payment options, even though it was somewhat sluggish compared to that seen in other countries. One of the main drivers of the trend has been the increase in online sales – an area where traditional cash is obviously not an option. Credit card companies such as Visa and Mastercard as well as payment service providers like PayPal, Klarna, Amazon Pay and others are playing an increasingly important role in e-commerce, even if traditional methods such as prepayment, direct debit or purchase on account still enjoy the lion’s share of the market. One of the reasons for this could be a degree of suspicion as to the security of cashless transactions. That, at least, is what the Bundesbank concluded from a 2015 study, noting however that the prevalence of this attitude was age-related: the younger the customer, the greater the readiness to use other methods of payment.

What about offline shopping?
But what is the picture in areas where the use of cash has long been the preferred mode of payment – bricks-and-mortar businesses, for example? If you ask retailers or providers of local services, they are likely to tell you they have detected a trend towards contactless payments. But are these subjective impressions borne out by the figures? According to studies by the German Bundesbank, there has been a long-standing reluctance in Germany – at least, compared with other countries – to adopt contactless modes of payment in retail outlets, with many preferring to adhere to the cash-only principle. Faced with the question “why use a credit card?”, most cardholders explained that it made payments easier abroad. In the bricks-and-mortar retail trade, for many years storeowners saw no advantage in offering payment options other than cash – after all, for these they would incur monthly fixed costs as well as further costs per transaction.

Only very slowly in recent years has there been a development in terms of market share. Numerous studies, by the Bundesbank and the ECB for example, have documented a constant but very slow decline in the use of cash in favour of other modes of payment. However, the amount to be paid remains a decisive factor: the smaller the sum, the greater the willingness to pay cash. For some years, in supermarkets and petrol stations it has been possible to pay by card or even by smartphone, but many shops still either refuse such payment methods altogether or accept, at most, the EC card.

The coronavirus – a gamechanger?
In times of pandemic, it seems that not only many customers but also many retailers are losing their fondness for cash. Their previous concerns as to whether electronic payment systems were sufficiently secure or cost-effective seem to have given way to worries as to the risk of contagion posed by cash and other contact transactions. Whether or not this reason for the increasing reluctance to use cash is in any way justified medically, coins and notes, and even the typing in of PIN codes on frequently handled terminals, do now apparently trigger a negative response in many customers and shopkeepers – something best avoided in case of doubt. Even the Bundesbank felt compelled as early as March last year to issue a statement on the risk of contagion posed by banknotes and coins. (Link to the Bundesbank Statement)

The increased willingness (to which we alluded at the start of this article) to pay even small sums by card or mobile phone illustrates the extent to which this development has taken root in the retail sector. Indeed, since the start of the pandemic, many retailers have been actively encouraging cashless and contactless payments.Various institutes have reported that measurable change occurred in the retail trade in 2020. Cash purchases continued to decline giving a significant boost to digital payment. What had in previous years, though, been a noticeable but nonetheless slow trend towards cashless payment accelerated sharply. A study published by the ECB in December confirmed these findings. (Link to the ECB)

Nevertheless, in bricks-and-mortar stores cash is still the most popular payment method, and the figures provided by the various institutions do not suggest that Germans are set to avoid cash payment systematically in the medium term. However, times of crisis – and the pandemic is undoubtedly that – were ever fertile breeding grounds for disruptive change. The smartphone payment alternatives offered by more and more banks and other companies are finding favour, according to the banks, because they combine a high level of security and convenience with totally contactless payment.

In 2019, before the pandemic had even hit, various companies estimated that between 5 and 10% of all adult consumers had used smartphone payment. At first sight, this may not seem a great many, but bear in mind that prior to 2018 mobile phone payment was not even possible in Germany.Business analysts are not expecting to see any reverse in this accelerating tendency when the coronavirus crisis passes. For retailers, it will therefore be more important than ever to offer as broad a range of payment options as possible in their stores, because one fact that emerged clearly from the studies is that shoppers denied their preferred payment options will, as likely as not, take their business elsewhere.

Link to the Studies of payment behaviour from Germany’s Bundesbank

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