Contactless payments have been gaining momentum for some years now, with payment via the tap of a bank card, smartphone, or wearable device becoming commonplace.
Consumers in many countries have been attracted by the speed and convenience of contactless payments compared to chip-and-pin (PIN) cards or traditional cash. Still, there is a huge amount of variation between countries in terms of how quickly this technology has been adopted. For example, in 2018 only 3% of payment cards in the US were contactless compared with up to 96% in South Korea.
This imbalance may be set to change, as concerns about hygiene and social distancing during the pandemic have made contactless payments very appealing. According to Mastercard, in 2020 contactless payments as a proportion of face-to-face payments have grown 25% compared to the previous year.
In this article, we take a look at the data starting to emerge on contactless payments and COVID-19, and consider what this could mean for the future of these transactions.
Cash Withdrawals Dall During Lockdown
Cash payments are a major competitor for contactless payments, as both payment methods are regularly used for lower value transactions. However, the COVID-19 pandemic has seen a fall in cash withdrawals and payments. The data is still coming in, but research in several European countries suggests that the virus has had a dramatic effect on our cash-spending habits.
In the Republic of Ireland, cash withdrawals fell by 56% during the first months of the pandemic, and cash payments more than halved. Meanwhile, in Switzerland, a country known for its preference for cash over electronic payments, cash withdrawals decreased by nearly 50% between the 16th March and mid-April. In Germany, there have also been big changes – with 56% fewer withdrawals from ATMs in the first month of Germany’s lockdown compared to the previous month.
But why this sudden aversion to cash? Several factors may be at work. First, the lockdowns imposed in many countries meant that people were going for fewer physical shopping trips, resulting in fewer transactions at ATMs. Second, concern that the virus could be transmitted via coins and notes prompted more consumers to use alternative payments, particularly contactless solutions.
Benefits of Contactless During the Pandemic
In this brave new world of social distancing, making the switch to contactless payments has seemed like a natural way for people to protect themselves and others while out shopping. Not only do they not have to handle cash that has been touched by many other people, but they also avoid contact with card readers that could hold traces of the virus on their surfaces.
Contactless payments made via a smartphone or wearable device mean even less touching is required. And QR code apps take this still further. The technology behind QR codes allows a customer to scan a merchant’s code with their smartphone camera from a distance of several metres away, making social distancing easier. Although QR codes have lagged behind other contactless payments outside of Asia, the pandemic may accelerate their use in more countries.
Aside from the issue of touching surfaces, the speed of contactless payments has also demonstrated further advantages during the pandemic. They reduce the time customers need to spend in-store and help to prevent long queues forming, lessening the risk of standing too close to other shoppers for a significant period, where they could become exposed to infection.
Governmental Support for Contactless Payments
Contactless payments have also received a significant boost from the advice and actions of authorities during the COVID-19 pandemic. As part of their efforts to encourage good hygiene and social distancing, many countries raised the minimum amount for contactless transactions in order to incentivise their use.
The Netherlands, Germany, and Belgium all raised their contactless limit from €25 to €50, so consumers would be able to pay for goods of up to €50 in value before entering their PIN. Similarly, in the UK the limit was raised from £30 to £45 – and in Switzerland from 40 CHF to 80 CHF.
Several national governments, including the UK and Canada, recommended the use of contactless payments over cash in order to pay for goods safely during the pandemic. In addition, the European Banking Authority advised payment services firms to help make contactless payments easier in order to restrict the spread of the virus.
Accelerated Trends for Contactless Payments in Europe
Contactless payments were already growing rapidly in popularity in certain European countries, but the pandemic seems likely to have accelerated this trend. In the Republic of Ireland, the number of contactless payments rose by 44% year on year in the third quarter of 2019. Research conducted during the pandemic suggests that use of these payments is continuing to increase, with more than three quarters of shoppers making a contactless payment at least once a week.
In 2019 consumers in Belgium were reported as being happy with their chip-and-pin cards, and in no hurry to adopt contactless alternatives. However, COVID-19 has evidently caused a change of mindset for Belgian shoppers: the market share of POS contactless transactions in Belgium more than doubled within two months during the pandemic.
In Germany and Switzerland, two countries slow to replace cash with contactless, the pandemic also seems to have had an impact on payments. Recent research by GlobalData showed that half of card payments in Germany are now contactless, compared to 35% before COVID-19 hit. Other contactless POS innovations are also being explored in the country, such as mobile check-out solutions.
For Switzerland, their decline in cash withdrawals (see above) was accompanied by an increase in contactless payments during the lockdown period. Payment apps are also gaining in popularity, with one app having up to 45,000 new users sign up each day since the start of the pandemic.
What Next for Contactless?
The COVID-19 pandemic has evidently accelerated use of contactless payments across Europe. With the advantages for hygiene and social distancing, more and more consumers are giving contactless a try.
But will contactless payment continue to be popular once the pandemic is over? Early evidence suggests it will, with 74% of respondents to a Mastercard study saying that they intend to keep using contactless after the pandemic.
Now that COVID-19 has brought about such significant changes in our payment habits, forecasters may be revising their estimates for when our societies will become cashless. Perhaps the pandemic has tipped the balance between cash and contactless for good.
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