Are Canadians ready to go cashless after coronavirus?
TORONTO -- As the pandemic loomed, Lillian Elliott and her partner Sheryl Davies headed to the ATM to stock up on a bit of cash. They haven’t touched it since.
The residents of Montague, P.E.I. had made it a habit of budgeting using cash in envelopes but since fears of transmission of COVID-19 has given widespread pause to handling bills and coins, the two have entirely shifted to using a credit card for expenses.
“I just don’t want to be touching money right now,” says Elliott, but she can’t foresee how shifting entirely away from cash would work in a place where every few houses has a table selling plants and produce and fishermen sell freshly caught lobsters right from their boats.
“They aren’t going to take cards or e-transfer for that,” Elliott told CTVNews.ca. “We buy free-range eggs for $3 a dozen from a woman who raises chickens on an old school bus. She’s not going to take credit cards. I worry about the independent people who are working to make money on the side.”
- COVID-19: Click for the latest news and analysis
- Coronavirus newsletter sign-up: Get The COVID-19 Brief sent to your inbox
Cash is an engrained part of our human existence.
But in this pandemic time, cash is also kind of taboo. Some merchants, including Loblaws and Tim Hortons, are urging non-cash payment and others, including Longos, Best Buy and Indigo are outlawing physical money altogether, over fears that bills and coins could be contaminated with the coronavirus and the exchange of money breaks physical distancing advisories.
A surge in online shopping, curbside pickup, and meal home deliveries is also driving a non-cash life.
“We project the pandemic will accelerate several years’ worth of digital transformation,” says Stacey Madge, country manager and president of Visa Canada.
According to Payments Canada data released in mid-May, 62 per cent of Canadians reported using less cash and 42 per cent had avoided shopping at places that don’t accept contactless payments. Many users of e-transfers, PayPal and credit cards said they were using them more.
“While we have seen a continued shift towards digital payments over a number of years in Canada, there’s no doubt that the prevailing pandemic has accelerated this shift – and will likely act as a catalyst in transforming the Canadian payment landscape forever,” said Tracey Black, CEO of Payments Canada in a press release.
According to Interac, a record 61.3 million e-transfers took place in April, up 62 per cent year over year, and first-time users increased by 43 per cent since mid-March.
Contactless is key in these physically distancing days.
About half of consumer spending on Visa cards in January was face to face. In just weeks, 60 per cent of spending was what is called “card not present” in the business. That was mostly driven by grocery delivery or pickup and restaurant delivery, says Madge.
To minimize the touching of PIN pads in stores, banks and credit card companies raised the limit on tap transactions from $100 to $250.
As we continue to adapt our ways of buying while the virus still lurks, digital habits are forming. People who never used banking apps or e-transfers are testing the waters. And those who already heavily used plastic and phones to pay for life’s expenses, are relying on them even more.
But how far can this all go? Could we one day only find a $20 bill or a toonie in museums or dusty boxes in the attic?
“It’s certainly possible we could get there but I suspect it won’t happen in my lifetime,” says Koker Christensen, co-leader of the financial services group at law firm Fasken in Toronto.
“There is a certain percentage of the population that likes the anonymity of cash and don’t want to pay the fees that come with digital payments.”
But he does think this pandemic is ushering in a permanent shift.
“The trend away from cash was already existing and it’s only being accelerated. We won’t go back to the way we were before.”
THE LONG DECLINE OF CASH
According to the Bank of Canada, there were 2.5 billion bank notes in circulation at the end of 2019 with a value of more than $93 billion. Sounds like a lot, but Canadians have been using cash less often for years now.
“Canada overall, is a very low cash-usage country. Of about a trillion dollars in personal consumer expenditures, less than five per cent of that is cash,” says Madge.
One study in 2017 concluded Canada was the No. 1 most cashless country in the world, topping the list because the country had more than two credit cards per person and because 57 per cent of payments were cashless.
A Bank of Canada survey the same year found that about one in 10 respondents said they were entirely cashless.
The flight from cash has only climbed since.
At the end of 2019, about 73 per cent of total transaction volume in Canada was electronic, says Ramesh Siromani, senior vice-president of enterprise payments at RBC, and cash use has declined about 40 per cent in the last five years.
That’s due to the growing convenience of debit and credit cards, the reward perks that come with using plastic, and technological advancement that is leading to digital wallets on smartphones and wearables.
But cash isn’t going down without a fight.
Payments Canada found in late 2019 that about 81 per cent of survey respondents said they had used cash in the last week.
The Bank of Canada says demand for cash has been relatively stable for more than three decades. That’s driven largely by growing demand for $100 bills – not for payments (after all, they aren’t taken by some merchants and aren’t available through ATMs), but rather for “savings or precautionary purposes.”
In a number of discussion papers, the central bank explores the terrain of a cashless Canada, but always under the premise that consumers and businesses just stop using cash. In other words, cashless-ness isn’t forced on Canadians, but driven by them.
It’s interesting to note, though, that while the costs of producing and processing bank notes was nearly $61 million at the end of 2019, according to the Bank of Canada, the federal government actually makes money – about $1 billion a year – by issuing money.
It’s an ancient concept called seigniorage. Simply put, it costs about 42 cents to produce and distribute a bank note but banks pay for them at face value. The central bank invests what the banks pay in securities, which earn interest. So every note produced earns interest every year for its life span.
'TACTILE AND TANGIBLE'
Sadie Sea is a big fan of cash.
The Fraser Valley, B.C. resident only deals in bills and bartering. While the local farmers’ market is closed down, she sells eggs and honey outside her home.
“It’s been working for me. I’ve only had one person say they’re not handling cash right now.”
Cash is a way of life for her and many people she knows, says Sea, who is in her 30s. She’s unsettled by the prospect of a drift to cashless-ness.
“I never thought it could happen in my lifetime, but now it seems possible.”
Sea, who recently traded a couple of dozen eggs in exchange for getting her lawn mower fixed and more to get a carburetor for her rototiller, says she has a general aversion to online life. But she really worries about the elderly and the homeless – she was once there herself – who don’t have the means to be digital.
Caterina Giovinazzo’s 90-year-old mother once prided herself on heading down to the bank to pay her bills in person. COVID-19 has changed that.
“My mother’s losing her independence and she’s very unhappy about that,” she told CTVNews.ca from her home in Ancaster, Ont.
Giovinazzo and her brother now take care of their mom’s finances through a banking app, which their mother neither understands nor trusts.
Maybe one day we will be cashless, but Giovinazzo, a retired schoolteacher, says she loves the feel of crisp bills. She puts them in cards for her now-grown nieces and nephews or gives them as tips in restaurants or salons.
“Bills are tactile and tangible. People of my mom’s generation are not comfortable with e-transfers and some people my age aren’t good with computers or won’t deal with apps. My cousin is two years older than me and for the first time, paid a bill online because she was forced to during this time.”
WHY CASH ENDURES
The benefits of cash are clear. It’s simple, accessible, steady in value and almost universally accepted. It’s anonymous, doesn’t leave a trail, can’t be hacked, doesn’t rack up transaction fees, and is usable even when the lights go out or the internet shuts down.
Many credit counsellors urge consumers to budget through bills in envelopes. When the money’s gone, the spending stops.
Cash is also ideally suited to small, informal or one-off transactions: Think garage sales, roadside fundraisers, church fairs, bake sales, buskers, and panhandlers. Not to mention the tooth fairy, the swear jar and piggy banks.
And cash is the only method of payment that doesn’t require some sort of an account with a bank.
Bonnie Morton, a veteran anti-poverty advocate, thinks a cashless economy can only work if access to a bank account and the internet is treated as a human right. She says she works with many people who can’t get a bank account because of a criminal record.
Some on social assistance refuse to get a bank account because the government can look at them and claw back payments if there are deposits that can’t be accounted for, she says.
“So these people have to go to money marts to get their cheques cashed, which charge huge fees,” says Morton, who is president of Canada Without Poverty, during an interview from her home in Regina.
“If we go to a cashless society, how do vulnerable people get what they need? A cashless society only works for those with enough money.”
Cashless-ness is neither inevitable nor desirable, says Bill Maurer, an anthropologist at the University of California Irvine who specializes in financial technology.
“As long as there are poor people or refugees and immigrants or the elderly or the disabled, where traditional financial institutions are not accessible enough, there will be a need for cash,” he told CTVNews.ca during a phone interview from his home in Long Beach, Calif.
Between a quarter to a third of Americans are considered unbanked (have no connection to a bank) or underbanked (lack a debit or credit card or don’t use them because of fees), Maurer says.
The numbers are much lower in Canada, where the World Bank says 99 per cent of adults have an account with a financial institution. Almost 90 per cent have both a debit and a credit card, says Payments Canada.
But there are other reasons cash endures, says Maurer, even among surprising groups. His recent research points to young people, who are entirely adept with mobile and digital, storing cash to check their spending and to save.
And many ordinary people are fed up with the fees of using digital money, says Maurer. Transaction fees, service fees, convenience fees attached by banks, credit card companies, payment processers, e-retailers, ride share and food delivery providers all add up for small businesses and consumers.
So for plenty of reasons, Maurer likens a cashless economy to a paperless office: much talked about and technically possible, but just too damn hard to achieve.
NO REASON FOR CASH
From the moment the Mad Radish started serving its upscale salads and bowls in Ottawa in 2017, cash was not welcome. Founder David Segal says there are plenty of reasons that made sense, long before COVID-19.
The restaurant, now with three locations in Ottawa and three in Toronto, caters to an in-and-out lunch-time crowd. Cash means lines build up. In-app payments or tap and go is fast.
Digital also means there is no need for staffers to count a till or risk delivering a bagful of cash to the bank at the end of the night, says Segal. The sales audit process is much simplified, too.
Segal, who also founded DavidsTea, says by the time he sold his interest in 2016, cash accounted for only about 10 per cent of transactions at the tea boutique’s storefronts.
“In 2017, when we opened Mad Radish, we saw no reason not to go without cash. It was trailblazing, but there were some people who weren’t happy about it at first,” Segal said in a phone interview from Ottawa.
There are reloadable gift cards, say for tweens who want a healthy salad bowl but may not have a bank card. A few people early on arrived at the register with only a bill in their hand.
“We’d give them their food for free. But it hasn’t been a big deal. Now everyone has a card in their pocket.”
Some U.S. states have made it illegal for merchants to prohibit cash, but in Canada, any seller has the right to refuse any method of payment.
“How people pay for a good or service (by cash, credit card, or in some other manner) is a matter of private agreement between the buyer and the seller, and must be acceptable to both,” Amelie Ferron-Craig, a spokesperson at the Bank of Canada, told CTVNews.ca by email.
But the central bank has repeatedly urged retailers to continue to accept cash since the pandemic took hold, saying doing otherwise “will put an undue burden on those who depend on cash and have limited payment options.”
On the flip side, Madge at Visa says merchants who don’t accept digital payments are missing out on the growing segment of Canadians who simply don’t carry cash, and usually spend more when they shop.
“There is typically a seven per cent increase in basket size when people are paying digitally.”
But Maurer argues there is a large cost for small, cash-only businesses in digital point-of-sale devices and paying transaction fees.
He thinks cash has been stigmatized as a source of spread of this virus or other germs, even though plastic cards and payment terminals are probably greater risks than bank notes.
“I worry that spills over into thinking of those who use money as being dirty. Some already associate those dealing in cash with criminality, that if you live in a cash economy, you must be a drug dealer or something.”
In his book “The Curse of Cash,” Harvard professor and former chief economist of the International Monetary Fund Kenneth Rogoff argues that eliminating $50 and $100 bills would undermine counterfeiting, money laundering, terrorist financing, human trafficking and tax evasion.
‘A TIPPING POINT’
The U.S. won’t be going cashless any time soon, says Maurer, but countries with lower levels of economic inequality, more social cohesion, and a greater trust in government and civic institutions – such as Sweden and Canada, says Maurer – may be more suited to an economy without bills and coins.
Sweden has long been the poster-nation for a cashless society, by some estimates as soon as 2023. It’s so far down that road that many bank branches are cashless and thousands of Swedes even went into the sci-fi realm by getting microchips implanted in their hands that allow payments with a swipe of the hand.
Innovation is ramping up in Canada, too.
Experts say what are called real-time rail payment systems will allow for a future in which you don’t check out at the grocery store, because you’ve been paying for each chosen item as you’ve shopped. You could order and pay for your meal at a food truck by tapping your phone to a code on a menu.
Vancouver is among a number of cities allowing riders to tap on and off trains, buses and ferries with their credit card or mobile wallet. It’s more convenient for all, says Madge, but especially for out-of-town visitors who don’t need or want a transit pass.
Siromani at RBC says in 18 to 24 months, Canadians will be able to instantly send money to each other using QR codes scanned on mobile devices and that invoicing will be built into the Interac e-transfer platform.
And Canada’s central bank is working with counterparts around the world on researching a central bank digital currency.
A central bank digital currency would truly bring cash into the electronic world, deputy bank governor Timothy Lane said during a speech in February. But he said that “there is not a compelling case” to go digital at this time.
Lane outlined two scenarios that would convince the Bank of Canada that it’s time for a centralized digital currency: if a “tipping point” was reached where cash could no longer be used for a “sufficiently wide range of transactions” and if there was widespread use of private digital currencies, that would “erode competition and privacy and pose an unacceptable challenge to Canadian monetary sovereignty.”
The biggest player in that space is the yet-to-be-released Facebook Libra.
COVID-19 and its effect on cash use may have changed the bank’s outlook on a digital currency, say some economists, though no one knows for sure how much of the shift in spending habits brought on by the pandemic will be permanent.
“People have been forced into it but they’re getting comfortable with the electronic world now,” says Siromani. “It’s a tipping point, there’s little doubt about it.”
But cash isn’t going away any time soon, he says, and consumers will continue to demand choice. His wife works in a bank branch where an elderly man comes in every week to withdraw $400. His visits have continued throughout the pandemic.
“There is a substantial segment of the population who love cash. That’s not going to change.”
Even a guy developing biometrics for credit cards doesn’t think cash is dead.
Andre Lovestam is CEO of Norwegian company Zwipe, which has developed a credit card that can only be used when its authenticated user holds a thumb over a chip embedded in the card.
Lovestam, who told an international payments industry webinar this week that Zwipe is expecting mass-market deployment in 2021, says no form of payment will become obsolete.
“Cash is sticking, cheques are sticking … Solutions will live side by side.”
Edited by Senior Producer Mary Nersessian