Contactless cards do not (yet) reduce cash demand

Note: This figure displays, by treatment group, the monthly average number of point-of-sale debit card transactions with a value of at most 40 CHF (the threshold for PIN-exempt transactions). Early adopters received the card in 2016q4; late adopters received the card in 2017q4; and non-adopters did not receive a contactless card.

The vast majority (75%) of additional debit card transactions attributed to the contactless technology are small-value payments (below 20 CHF). As a consequence, the causal impact of the contactless technology on the volume of debit card transactions is marginal. This implies that the average effect of the contactless payment technology on consumers’ share of cash payments is economically small and statistically insignificant. Likewise, we find no average effect of contactless cards on cash demand, that is, the frequency of cash withdrawals or the average cash withdrawal amount. Our results thus suggest that the contactless payment technology increases the average consumer’s use of payment cards. But as the effect is concentrated in small-value transactions, which start from a low level, the economic effect on cash demand is negligible.

Large differences in payment behavior among clients

We observe substantial variation in payment behavior across consumers: one-quarter of the sample population relied almost exclusively on cash, while another quarter made their purchases already predominantly by card. The impact of contactless technology on these groups differs considerably: cash lovers hardly changed their payment behavior, but intermediate users increasingly used cashless payments, especially for small amounts. And who are those contactless card lovers? As expected, young people (below age 35) are more likely to adopt new technologies. Their annual trend decline in the use of cash is seven times larger than that for people over age 55. Surprisingly, contactless cards only changed the use of cash of the youth in urban settings; we find no effect on the use of cash among youth living in the countryside.

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It might be a long way to a cashless society

In the last century, we have witnessed major innovations in payment technology, such as credit cards (late 1950s), ATMs (late 1960s), and debit cards (1970s). None of these innovations has questioned the future of physical money issued by central banks. However, it is a widely held presumption that the recent innovations of contactless, mobile, and instant payments will accelerate the move to a cashless society. This would pose challenges to central banks that have a mandate to guarantee a safe, efficient, and broadly accessible payment system. To counterbalance ongoing payment innovations and an expected strong decline in cash demand — as has been observed in Sweden, for example — many central banks are now contemplating the introduction of electronic cash substitutes, that is, central bank digital currencies.

Our results suggest that it still might be some way to a cashless society — even when considering that the trend decline in the use of cash might accelerate.  This conjecture applies to economies where cash is still much used, like Germany, Switzerland, Austria, and various other European countries (European Central Bank, Deutsche Bundesbank, Swiss National Bank). For consumers in countries that are less cash affine, like the United Kingdom, Sweden, and Canada, high cash use rates might be a reminiscence. However, our results also document significant and persistent heterogeneities in payment choice across consumers, which points toward the importance of habit and/or behavioral motives. We conjecture that such persistent behavior may also apply to specific socio-demographic subgroups (for example, older cohorts) in countries where cashless payments are more prevalent.

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COVID-19 and the use of cash

Recent data reveal that non-cash payments and in particular contactless payments have increased strongly and the use of cash has declined (for example, Deutsche Bundesbank; Ardizzi, Nobili and Rocco; Jonker et al., Kraenzlin et al.).1 Although our results do not allow us to make evidence-based predictions about the impact of the COVID-19 pandemic on payment behavior, they suggest that in normal times consumers might have perceived the incremental convenience of contactless cards as too small, on average, to cause large shifts in cash demand. The strong increase in the use of contactless cards during the COVID-19 pandemic could thus be seen as an exogenous shock that shifted relative costs and benefits enough to affect money demand (Alvarez and Argente). It remains to be seen whether these changes are permanent and which groups of consumers changed their behavior.


The findings, interpretations and conclusions presented in this article are entirely those of the authors and should not be attributed in any manner to the Oesterreichische Nationalbank or the Eurosystem.


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