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Innovations and Payment Systems

How COVID-19 is possibly leading the cashless revolution

Germ-ridden cash and cards give way to contactless payments amid coronavirus pandemic

Summary

The majority of purchases now occur with as little contact as possible, due to coronavirus-related lockdowns. And while it’s too early to tell, contactless payment methods – like mobile wallets –  could soon become the new normal in the U.S.

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The emergence of the novel coronavirus may speed the movement to cashless payments – but in the chaos of businesses shuttering and customers barricading themselves at home, it’s too early to tell.

“It’s hard for us to say whether there’s less cash payments or not,” said Neil Randel, founder and CEO of First American Payment Systems. “Obviously, it’s inevitable that cards are going to be the winner here.”

It appears that there’s “been an uptick” in use of the company’s processing terminals, but that’s difficult to determine given what else is going on, he said. For instance, one of the company’s clients is a fine-dining restaurant in Fort Worth, Texas, where First American is based.

The restaurant only allows takeout now, and has since watched its business plunge by 88%. How to measure, at that point, whether cashless payment is up or down when all receipts have dropped so profoundly?

See related: How to use cashless payment systems without overspending

False sense of security

There does seem to be some small increase in contactless payments over the last two weeks, but nothing substantial, said Chris Harris, the head of marketing for Ondot Systems, a Santa Clara, California company that provides banks and credit unions with a digital card services platform. This may be, in part, because “in-person transactions are not truly contactless very often,” he said. “You usually still have to enter a pin or press a touch screen.”

What bank clients are reporting is a run on cash, with panicked customers stockpiling greenbacks for an emergency, he said. “There’s no indication they are using more of it,” he said, “just keeping it on hand.”

It’s a trend playing out among some account holders at TD Bank, based in Cherry Hill, New Jersey. “They want safety and security,” said Mike Kinane, head of Bankcard at TD Bank. “They want to pull out cash.”

But as Harris observed, they don’t seem to be using it. Customers “are starting to spend less overall,” Kinane said.

Discretionary spending is down by double digits and even non-discretionary spending is decreasing, he said, perhaps because people are spending less on fuel as they’re mainly staying home.

The bank has seen a slight increase in non-face-to-face transactions as a percentage of total transactions. “That’s probably reflective of the fact that people can’t walk into stores,” he said.

From the perspective of Ondot, at least, this last shift looks like a major one. “E-commerce, mail order and telephone order transactions have dramatically increased,” Harris said, “while in-person transactions have fallen.”

See related: Busted: 12 myths about contactless cards

Accelerating existing trends

But not all businesses are ready to take virtual payments, or even advertise themselves and their wares effectively online, said Michael Reed, head of the payments division at Deluxe Corp., a financial services company based in Shoreview, Minnesota.

Restaurants, in particular, have been frantic to meet whatever demand they can, he said. Some lack digital menus, others can’t take payments digitally or even run a credit card over the phone. The coronavirus crisis “is accelerating trends that were already there,” he said.

Another sector that is “clamoring” for digital capability is the health care insurance industry, he said. At issue, suddenly, are the checks that insurers mail to reimburse members who receive care out of network. Customers don’t want to receive paper, and businesses don’t want to have to send an employee to the bank.

Deluxe had already been working on a way to help its customers digitize that reimbursement process. Now, “the companies that we are working with have been calling, asking us to accelerate our plans,” he said.

See related: Gen Z most frequent users of contactless cards, study shows

Dirty money

In fact, businesses are so reluctant to or unable to issue checks these days that it can be difficult to get paid for work already done, said Joe Jenkins, a corporate event photographer in New York City.

Some of his clients can’t print company checks from home, where they’ve been forced to work from. Others are handcuffed by new company rules that prohibit mailing items for fear of transmitting the virus on the paper, he said.

This is the same fear many people have about using dollar bills and coins. And it’s not unfounded. “Money does carry germs,” said Miryam Wahrman, a professor of biology at William Paterson University in Wayne, New Jersey.

Wahrman and colleagues did a study in 2018 where they observed food vendors in New York City conducting nearly 500 monetary transactions. They also made their own purchases from the vendors, and brought the dollar bills they received in change back to the lab.

More than three-quarters of the bills were contaminated with bacteria – “we weren’t looking at viruses,” Wahrman said, “but the same rules apply.” The same process in New Jersey yielded a 100% bacterial contamination rate.

“Currency goes from person to person, and it changes hands,” she said. “It might very well be contaminated. If you use money, segregate it in your wallet. If you handle money, before you touch your eyes or your mouth, you should wash your hands.”

Dirtier cards

But don’t think that means credit card transactions are sanitary. Those plastic rectangles we keep in our wallets actually carry more germs than cash, according to a 2018 study by CreditCards.com and the University of Texas at Austin.

The transaction itself is rife with viral transfer possibilities – from the slot where you insert your card (just as other people have done with their cards before you), to the stylus you grasp to sign your name to the keypad where you punch in your PIN if you’re using a debit card.

This is why Yeages Cowan’s doctor recommended she stick to Apple Pay and other contactless payment methods. Cowan, who lives in Bethesda, Maryland, is a double-lung transplant patient and was recently on a conference call with her physician and other transplant survivors.

“He said, ‘What we would recommend is no cash,’” she said. “If you have to use a credit card, wipe it down after you use the terminal because everyone uses those things. Preferably, though, we’d go to a no-touch method.”

That’s what at least one chain is doing storewide. In California, where most stores have been ordered to shut down, pet stores are considered essential businesses and may continue operating their storefronts.

On March 26, Healthy Spot, a Culver City, California-based chain, emailed its customers about changes at its 21 natural pet food stores in Los Angeles County, Orange County and San Francisco.

“In an effort to keep our teams and community safe,” the email read, “effective immediately, all of our locations will be cashless… We apologize for any inconvenience, but the safety of our team and customers remain our top priority.” Healthy Spot declined to comment for this article.

Unintentionally leading the charge

If COVID-19 pushes America into an increasingly cash-free world, it may also help this country make the leap into contactless payments. As of last year, less than 2% of all transactions in the U.S. were touch-free, according to a report from management consultancy firm A.T. Kearney.

But outside of the United States, about 50% of all Mastercard payments were contactless in February 2020, said Biz Cozine, a spokeswoman for the credit card company.

Domestically, many customers have been issued tap-and-pay credit cards, but that doesn’t mean they know how to use them – or that when they try, retailers have turned on the feature on their terminals, Harris said. “Once we hit critical mass for digital wallet acceptance,” he said, “you could see this trend accelerate rapidly.”

Susan Black, for one, is ready to try. A single mother of two teenage sons in Santa Monica, California, she traded out her cash for plastic and her phone’s digital wallet “as soon as we went on lockdown,” she said. She also stopped using her debit card, so she could avoid touching the keypad when she paid.

Still, when she goes into her bedroom, her gaze falls upon the $100 bill laying on her dresser drawer. Sure, she could use the extra cash. “But it just sits there,” she said. “I’m like, ‘Nope!’”

Tips for safely using your credit cards

  • Use tap-and-go if you have a contactless card
  • If you have to dip or swipe, clean your card after each transaction
  • Add your debit and credit cards to your mobile wallet
  • Wash or sanitize your hands after every transaction

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