Governments and businesses enforced lockdowns and urged non-essential workers to stay home. Shops closed their doors. Nearly every aspect of our daily lives, from grocery shopping to doctor visits, took place virtually. And even when people did need to purchase something physical from someone else, there was confusion about whether exchanging cash was safe.

According to consumer surveys and industry data, there was a clear shift to cashless payments in stores as well as through e-commerce. In response to people’s preference for using credit or debit cards – whether they were plastic, virtual, or on a mobile phone – more than 30 countries raised the limits for contactless payments. Then, unsurprisingly, there was a kind of a bounce-back effect with the easing of restrictions over the summer. So, the big question is: Will the shift to digital payments be permanent, and to what extent?

To answer this question, we analyzed recent data from central banks and other institutions on consumers’ payment and spending behaviors over the past year. More specifically, we wanted to understand the impact of lockdowns, bounce-back effects, and subsequent restrictions in the UK, Ireland, and Switzerland. Here’s what we discovered: 

1. Development of card-based POS and ATM transactions strongly diverge – with a delta of 30+ percentage points within one year. COVID-19 strongly accelerated cash displacement despite some bounce-back effects.

2. Massive – and lasting – shift to e-commerce. Even with the easing of restrictions, the share of e-commerce in total retail remains at a higher level than before.

1. Development of card-based POS and ATM transactions strongly diverge – with a delta of 30+ percentage points within one year. COVID-19 strongly accelerated cash displacement despite some bounce-back effects.

# of card-based POS/ ATM transactions

When the first lockdowns began in late March 2020, transactions at the (card-based) POS and at ATMs dropped significantly in all three countries we analyzed, namely the UK, Ireland, and Switzerland. In the UK, for example, the number of transactions at the POS dropped in April 2020 to 42% of the January level (Ireland: 75%, Switzerland: 72%). Similarly, transactions at ATMs dropped in April to 50% compared to January in both the UK and Switzerland, and even more dramatically to 40% in Ireland.

But then, as restrictions eased over the summer, POS transactions recovered. The data shows that POS transactions actually increased to levels higher than in January, peaking at 107% respectively 119% in the UK and Ireland in August, and at 122% in Switzerland in July. In addition, ATM transactions (i.e., mainly cash withdrawals) recovered, though not to the same extent. In Switzerland, for instance, ATM transactions returned closely to where they were in January 2020. But in the UK and Ireland, the recovery stopped at ~75%.

To complete the picture of how much cash people withdrew from ATMs, the average withdrawal amount needs to be considered. In all three countries we analyzed, the average withdrawal amount increased by roughly 15% from the beginning of the year to summer 2020. However, in Ireland and the UK, the number of withdrawals was still far below the January level, which means that the total amount of cash withdrawn in summer, i.e. a situation without any nationwide lockdowns, was still roughly one quarter below the January level. In contrast to this, the number of cash withdrawals in Switzerland recovered significantly, to around 90%-95% of the January level. This data, combined with the increased average withdrawal amount, shows that the total amount withdrawn in Switzerland was ~5% above the January level during the summer of 2020.

2. Massive – and lasting – shift to e-commerce. Even with the easing of restrictions, the share of e-commerce in total retail remains at a higher level than before.

e-commerce share of total retail business

Out of necessity, people’s adoption of e-commerce clearly accelerated during the spring lockdowns; its increased share of total retail business is visible in both the UK and Ireland (No data available for Switzerland). In the UK, the e-commerce share rose by more than 50%, from 20% of total retail business in January 2020 to 34% in May. And in Ireland, the e-commerce share quintupled from 3% in January to 15% in May. Even in absolute terms, considering that the total retail volume went down during the lockdown the e-commerce volume almost tripled in Ireland at the peak in May. The tremendous increase in Ireland can be explained with two reasons. One the one hand, Irelands total retail volume dropped stronger than in the UK (Ireland by 28% in May, UK by 15%). On the other hand, Ireland started with a significantly lower share of e-commerce overall, and it appears that the shift to e-commerce was less persistent than in the UK. Until August, the e-commerce share decreased to 5% in Ireland, and respectively to 29% in the UK. In other words, Ireland experienced a relative bounce-back effect by two thirds, while that same effect was only 16% in the UK.

More recently, amid the second wave of COVID-19 and the tightening of restrictions, there has been another notable shift to e-commerce. In Ireland, e-commerce doubled from January 2020, rising to 6% in October of the same year. And while the UK remained steadier at a higher level, the share of e-commerce appears to be going up again.

Clearly, there is evidence that COVID-19 accelerated cash displacement in a sustainable and noticeable way. However, at the same time it is no landslide shift yet. The patterns and magnitude of change vary across countries. While Ireland experienced the biggest, and most adverse, effects of COVID-19 on (card-based) POS and ATM transactions, the shift to e-commerce has so far been less sustainable than in the UK. The POS effect in Switzerland was similar to the one in Ireland, but ATM transactions recovered back to pre-crisis levels, which led to an increase in the amount of cash withdrawn. And finally, in the UK, POS and ATM transactions developed similarly to the ‘Irish pattern’, however POS transactions ‘only’ peaked at 109% of January levels (compared to 119% in Ireland) which is likely due to a more sustainable shift to e-commerce.

With cash becoming less frequently used, leaders across sectors and regions should prepare themselves for a more cashless society. And for the payments industry, now is a critical time to prioritize expense transparency, coverage of payment methods, and seamless management of sales channels. In 2021, we see various key initiatives:

Banks and issuers

- Develop account-based solutions (e.g., around request-to-pay) to provide cashless alternatives without cards as well as a next-level user experience.

- Enable convenient and transparent financial control on spending behavior.

- Work out new operating models for ATMs to run less frequently used networks in an efficient way (e.g., ATM unions).

Retailers

- Push omnichannel solutions in order to be ready for a further shift to online – and further lockdowns.

- Foster acceptance of cashless payments beyond cards and alternative payment methods to achieve a balanced cost structure and enable added solutions (e.g., pay later, pay in 3).

Merchant service providers

- Strengthen e-commerce and omnichannel capabilities to accompany retailers on their transformation.

- Develop new sources of revenues for decreasing revenues of traditional terminals, as every smart device can become a terminal itself.

Vir: https://www.linkedin.com/pulse/why-covid-19-marks-real-turning-point-transition-from-g%25C3%25A4rtner/