COVID-19 Is Changing Consumer Behavior At The Point-Of-Sale

October 12, 2020 By iwano@_84 Off

As shelter-in-place orders spread across the US in mid-March, cash was already coming under fire as a potential vehicle for spreading COVID-19. Media articles and nightly news reports quickly began targeting the unsanitary aspects of physical currency, and many merchants started affixing signs to their storefronts or checkouts encouraging the use of cards, and in some cases outright banning cash. 

These developments, paired with growing concerns about physical contact and contagions, have helped drive a noticeable decline in cash utilization, according to a Q3 2020 US consumer survey fielded by 451 Research, which is part of S&P Global Market Intelligence. The survey revealed that more than two in five consumers are using cash less often since the COVID-19 outbreak started. The decline is strongest for respondents with a household income above $150,000 and those belonging to Gen X (38-53 years old), where 64% and 54% have decreased their usage, respectively.

Cash use has suffered as consumers have consciously and subconsciously looked to adhere to three key priorities while in-store:

  1. Limit what they’re coming into contact with (e.g., point of sale terminals, cash).
  2. Minimize time spent in close proximity to other people (e.g., cashiers).
  3. Avoid events that increase overall shopping time (e.g., lines, making change).

Contactless payments help address each of these concerns at checkout by enabling a more efficient and hygienic payment experience. This is important because, at least in the US, contactless has long been characterized as a solution in search of a problem.

Contactless payment adoption and usage is increasing

451’s survey has revealed two key contactless trends that have emerged from the pandemic. The first is new user activation. Many consumers that never saw a reason to use contactless before tried it for the first time, presumably given the hygienic and social-distancing benefits of tap-to-pay. More than one in six respondents to our survey made their first ever contactless transaction during the pandemic. Net-new contactless adoption was highest for Gen Z (25%) and Millennials (23%), but even one in 10 Baby Boomers made their first ever contactless payment this year.

The second trend is increased utilization. Nearly one in three (29%) consumers said they increased their usage of contactless payments during the pandemic, with Millennials (40%) and Gen X (39%) recording the biggest usage gains.

The accelerated trend toward contactless payments is important for card networks and card issuers because, quite bluntly, contactless payment users are more valuable. Visa
V
, for instance, sees an average of a 20% lift in volume for cardholders after they make their first contactless purchase. This occurs as cardholders begin to use their card (primarily debit) in place of cash, especially for sub-$25 transactions where cash (and contactless) use is strongest.

A burning question that we’ve been getting from clients is whether consumers will continue making contactless payments after the pandemic retreats. Our survey indicated that – overwhelmingly – yes, cardholders that tried contactless for the first time will look to continue that behavior moving forward. In fact, 86% of first-time contactless users plan to continue making contactless payments. This points to the potential for ongoing cash displacement. It also underscores the increasing importance of contactless as a top-of-wallet factor and volume driver for card issuers.

The Upshot

While some cash usage has simply evaporated due to decreased consumer spending, sufficient evidence indicates that the pandemic has played a role in cash-to-card conversion. Contactless has long been a key driver of cash displacement, and arguably even more so since the onset of COVID-19. To capture more card volume, issuing banks should consider tactical reissuance of contactless cards while widely promoting the hygienic benefits of cashless payments to their cardholders. Card issuers that have not begun contactless issuance or do not yet support digital wallets must recognize that contactless is quickly becoming a top-of-wallet factor in the US. Without a contactless strategy in place, banks that haven’t acted risk cardholders swapping for cards from other issuers that are enabled for tap-to-pay.

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