Increased use of contactless payments does not automatically equal a reduction in cash use, according to a study of Swiss bank customers, which found no evidence of payment innovations having a significant effect on either payment choice, or demand for physical money.
The study—conducted by researchers at Switzerland’s University of St. Gallen and Austria’s National Bank and published in May 2021—used anonymised data from 30,000 accounts at a Swiss retail bank to examine card transactions and cash withdrawals 2015–2018. This period was significant as, beginning in 2016, the bank rolled out contactless debit cards to customers as their existing cards expired. Using this data, they sought to isolate the effect of a new technology on payment behaviour.
Access to contactless payment technology causes a sizeable increase in the use of debit cards for small-value payments. However, the average impact on the use of cash and on cash demand is economically small and statistically insignificant.
The contactless payment function saw cards used more frequently, with debit card point-of-sale transactions rising by seven percent annually. Given 75 percent of the additional transactions were for low-value payments, however, the impact on cash usage was marginal. Additionally, frequency of cash withdrawals and average amounts showed little change, and customers with a strong preference for cash continued to use it as before.
The researchers suggest this data points to contactless payment technologies largely replacing non-contactless card transactions, and thus having minimal effect on physical currency. Additionally, even if card usage were to see an overall increase, the impact on overall payments may be ‘economically irrelevant’ given they are predominantly used in small transactions.
In conclusion, the researchers note ‘it might be a long way to a cashless society’, pointing to major innovations in payment technology—such as credit cards in the late 1950s, ATMs in the late 1960s and debit cards in the 1970s—which did not lead central banks or economists to question the future of cash, nor erode its value or usage.
On the changes wrought by COVID-19, they note non-cash payments have seen strong gains with cash use in decline, but say it remains to be seen whether these changes will be permanent, and which groups of consumers have actually changed their payment behaviour.