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Coin shortage bodes well for cards

Supply chain issues and changing consumer preferences have some big retailers asking for cards and exact change only

Summary

Coins are in short supply in the era of COVID-19, and some major retailers are asking customers to pay with cards or exact change. Cash isn’t dead yet, but the coin shortage could be good news for credit and debit cards and contactless payments.

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Your pockets might be feeling a bit lighter – and quieter – these days.

You’re a lot less likely to have change jangling around in there. Just like PPE, toilet paper and hand sanitizer, coins are in short supply in the era of COVID-19.

“With the partial closure of the economy, the flow of coins through the economy … it’s kind of stopped,” Federal Reserve Chairman Jerome Powell told the House Financial Services Committee last month.

And in the ensuing weeks, the situation seems to have worsened.

For example, Walmart and Kroger are among the major retailers now asking customers to pay with credit cards, debit cards or exact change. Kroger is going a step further and no longer giving coins as change.

If a customer pays with cash, his or her purchase is rounded up to the next dollar. The excess is either placed onto a store loyalty card for future use, or it can be donated to a charity that aims to eliminate hunger.

See related: When to use cash, credit and debit

But cash isn’t dead yet

The coin shortage is partly a supply chain issue and partly germaphobia. The problem is that about 7% of U.S. households don’t have a bank account and another 19% are considered underbanked, according to the FDIC. That means roughly a quarter of all Americans have limited, if any, access to the traditional banking system.

Cash was, by far, the preferred payment method for purchases under $10, according to a CreditCards.com survey conducted last summer. Some 49% of U.S. adults said they typically made these smaller buys with cash, 35% usually paid with a debit card and 16% with a credit card.

Zooming out farther and considering all payments in the U.S., cash is still a formidable force. The Federal Reserve’s 2019 Diary of Consumer Payment Choice identified cash as the second-most used payment instrument (26% of all payments, behind debit cards at 28% and ahead of credit cards at 23%). And before you point your finger at baby boomers, the Fed found that the highest share of cash usage was people under age 25.

Pre-COVID, cash usage was waning somewhat, but it was still extremely common. Efforts to ban cash were rebuffed by major cities such as New York, San Francisco and Philadelphia, and even entire states like Massachusetts and New Jersey.

Most of these cashless bans were implemented after certain businesses tried to go card-only. Picture a busy lunch spot pre-COVID: The owner might have thought eliminating cash would speed the line, limit theft and remove the hassle of daily trips to the bank.

But in an effort to protect the tens of millions of Americans who are unable or uncomfortable using cards, these and other municipalities banned the cashless concept.

See related: How the cashless trend affects those who rely on cash

Contactless is catching on

Cash is likely to be an available payment option for the foreseeable future. Whether or not customers will continue to choose cash is a more interesting question. There is evidence that the pandemic has accelerated the adoption of digital alternatives, particularly contactless cards (which include mobile payments services such as Apple Pay as well as tapping a physical card on a payment terminal).

Visa reported a 150% surge in U.S. contactless payments from March 2019 to March 2020. An American Express survey found 58% of Americans who have made a contactless payment are more likely to do so now compared with pre-COVID. And 82% of consumers believe contactless is the cleaner way to pay, Mastercard says.

The major card networks all believe the pandemic is encouraging consumers to establish new habits. Their theory is that once people try contactless payments a few times, they’ll make it part of their longer-term routines. I think there’s a lot of truth to this, and even more reasons to be bullish about the future of credit and debit cards. Don’t count cash out just yet, though.

See related: How to clean your credit card

Debit cards may have the most growth potential

Remember those young adults who like cash? They like debit cards, too. The Fed revealed that not only are debit cards the preferred payment method for 25-44 year-olds, but their debit usage rose from 25% of transactions in 2016 to 34% in 2018.

During their Q2 2020 earnings calls, Chase and Wells Fargo noted that debit card spending was holding up better than credit cards (with debit relatively flat versus last year and credit card spending down about 10% at last check).

Credit cards scare many 20- and 30-somethings saddled with student debt, and they can also be harder to obtain for people without established credit histories. Trouble accessing credit has become more acute during the pandemic as lenders tighten approval standards out of concern for the state of the economy.

Of course, the best way to use a credit card is like a debit card – paying it off in full every month to avoid interest, but taking advantage of credit cards’ superior rewards programs and consumer protections.

Have a question about credit cards? Email me at ted.rossman@creditcards.com and I’d be happy to help.

Editorial Disclaimer

The editorial content on this page is based solely on the objective assessment of our writers and is not driven by advertising dollars. It has not been provided or commissioned by the credit card issuers. However, we may receive compensation when you click on links to products from our partners.

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Credit Card Rate Report Updated: October 28th, 2020
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13.91%
Airline
15.50%
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15.85%
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