Is Cash King?
There used to be a saying, ‘Cash Is King’. It was broadly accepted that you would get a better price if you offered someone cash. But does this still ring true? Did the Covid-19 Pandemic reshape the financial landscape and consign physical money to the back of our wallets? Do we even use cash machines anymore when so many outlets accept card payments for small amounts?
It is not just the pandemic that has shifted our habits, however. For several years the future of cash was being discussed by central banks, and the use of digital payments sped up. What the pandemic did was act as a catalyst for a trend that was already emerging. According to a survey by McKinsey and Co, the pandemic accelerated the digitization of the economy by seven years. These changes have led to new consumer behavior.
Several factors came together in a perfect storm to change our relationship with cash. We had all carried debit and credit cards in our wallets for decades. These cards were used mainly for larger purchases. Some people welcomed the introduction of contactless payments. However, card payments have always been more expensive for sellers to accept than cash, so most outlets set a minimum spend against card use. In addition, the contactless method had a relatively low upper spend, so service was limited.
Contactless led the way
A big game changer in contactless payments was the introduction of e-wallets on our mobile devices. This meant we did not need to carry our physical wallets around. Our payment card details were all stored securely on our phones. Because they required our face or fingerprint to verify the purchase, they did not have the same upper limits as physical contactless cards. While not everyone had a smartphone, many people now saw the benefit of not using cash. With linked banking apps, it was easy to keep an eye on what was being spent.
The Rise of The e-Wallet
The rise of e-wallets can also be attributed to our general acceptance of digital payments over the recent decades. Not so long ago, people would pay each other by cheque, which had to be sent to the bank to be cashed. It could take days for the checks to clear funds into your account. Digital transfers allowed for money to move much more quickly. In addition, cash and checks were useless in the eCommerce world.
PayPal keeps innovating
The banks were initially slow to find a solution to online payments, which is how PayPal became a dominant force in online transactions. Originally a peer-to-peer money transfer platform, PayPal was bought by eBay and was the only legitimate way to pay for purchases on the site for years. PayPal has become such a trusted brand that people want to use it everywhere online. Shoppers expected to see the option at their cart on every online site from e-tailers, crowdfunding platforms, and entertainment sites. For example, casinos accepting PayPal deposits are now the standard expectation.
However, online activity was still marginal. The significant shift occurred during the pandemic. Shopping online became the norm for most people. Most outlets no longer wanted to handle cash when people had to buy in person. Almost all merchants allowed contactless card and e-wallet transactions regardless of value to ensure minimum social and physical contact. At the same time, the banks increased the upper limit, so people who only had cards could spend more without entering their PIN in the terminal.
The volume of cash lodged at central and commercial banks fell by around 25%. A survey from mid-2020 showed that about 40% of the respondents used cash less frequently than before. It seemed that the death knell for cash was tolling out loudly. However, the demise has halted, and a new set of circumstances appears to be affecting our relationship with money again.
We are sociable creatures, and while we tolerated shopping online when we had to, many people were desperate to get back into the physical high street and malls when restrictions were lifted. As a result, a good deal of cash began circulating again. However, digital payments have taken a foothold, and many customers prefer to pay this way.
The reason that cash remains popular is mainly due to budgeting. World events have seen a rise in inflation, and our incomes have decreased in absolute value. As a result, many people are having to be more careful about what they spend. In addition, people are doing smaller, more frequent shops in person. Many say that if they withdraw their available cash at the beginning of the week or month, it is easier to keep an eye on what they have left to spend.
Prepayment Cards in the Digital Era
The digital card providers have a cash-like solution too. This is in the form of pre-payment cards. The cards and digital accounts can be loaded with the available cash and used in all environments where card and digital payments are accepted. A pre-payment card could be considered cash and card all in one place. They offer the flexibility of digital payments with the control of a finite amount of cash.