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Cash Exodus: COVID 19 pandemic could accelerate shift to cashless, experts say

shutterstock_350739986Some businesses reopening with pandemic protocols in place have said they won’t accept cash for the time being, potentially accelerating what the Bank of Canada describes as a decade-long shift away from the banknote.

Cashiers at Longos, Best Buy and The Shoe Company, for instance, will refuse cash out of concern the bills are a vector for the novel coronavirus. But experts – and Canada’s central bank – warn this leaves those without bank accounts, and some others with low incomes, by the wayside.

“This is going to be a big shock to the system that will push us in the direction of a more modernized payment system,” said Walid Hejazi, an associate professor of economic analysis and policy at the University of Toronto. “And if the developments we’ve seen during the pandemic continues to accelerate, we’re going to get to that fully modernized payment system much more quickly.”

The migration away from cash has been ongoing for more than a decade, according to the Bank of Canada’s most recent survey on methods of payment, conducted in 2017.

That year, it said, 33% of transactions were done in cash, down from 54% in 2009.

Smaller surveys conducted by Payments Canada, which handles the clearing and settlement of payments in this country, suggest the trend has only continued in the last few years and has accelerated in the past few months. And Interac, which operates Canada’s debit payments system, said last week that e-transfers are more frequent than ever during the pandemic and use of the contactless “Flash” tap payment system is also up.

But Canada’s central bank warns that the decision to refuse cash, while legal, could be disastrous for some of society’s most vulnerable, including the homeless and others without bank accounts.

In its report based on the 2017 survey, the Bank of Canada said 99 per cent of Canadians had a debit card and 89% had a credit card.

But Hejazi said the number of Canadians reliant on cash is likely much higher than those figures indicate.

“There’s large groups within our society that will not have access to those digital platforms in the way that might be assumed,” he said.

Some may have debit cards without much – if any – money in the account, while others may have credit cards that are maxed out, he said. Others still have low-cost bank accounts with limited transactions.

And as the popularity of online and mobile payment rises, the cost of mobile data plans also factors in, Hejazi said.

For businesses, the benefits of going cashless are appealing even beyond the pandemic, he said. Businesses that don’t accept cash don’t have to carry a “float” – money to give as change. Their transactions are already counted and their books are automatically reconciled, they need to make fewer trips to the bank and are less likely to be robbed.

But the effects on already marginalized groups would also be lasting – particularly for the homeless population, some of whom rely on panhandling to survive, he noted.

The Bank of Canada last month urged retailers to continue allowing cash transactions in part for that reason.

In an effort to mitigate the consequences, the Retail Council of Canada is recommending its members “encourage” contactless payment methods rather than mandating them.

“We’re still finding that a lot of merchants will accept cash, and that’s everything from large entities that have multiple tellers all the way down to conveniencestores,” said Karl Littler, senior vice-president of public affairs for the council. “But obviously, it’s the merchant’s prerogative as to whether to do so.”

He said the council’s recommendation errs on the side of caution as both the Bank of Canada and the World Health Organization say handling cash is about as risky as touching other common household objects, such as doorknobs, and warrants a wash of the hands rather than an outright ban.

But Littler said discouraging the use of cash minimizes risk.

“If you give cash, you get cash in return,” Littler said. “And so one of the challenges there is that although the people in the store may be very well oriented towards appropriate sanitization and physical distancing and so on, you’re actually getting somebody else’s cash back.”

 


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C-store IQ Payment Solutions Report

 

Look, no hands: Convenience shoppers prefer to tap and pay

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Cash is no longer king, having been dethroned by shoppers opting for contactless payments at the c-store level. 

Fittingly, a primary driver is overall convenience, as shoppers seek quick and easy ways to pay, whether in store or at the pump, according to Convenience Store News Canada’s proprietary research report C-store IQ: A National Shopper Study

C-Store IQ is the first convenience and gas specific study that delves into the wants, needs, perspectives and habits of Canadian consumers. 

Of course, these days contactless isn’t just the word for tapping to pay with a credit card, debit card or mobile app—it’s a strategy to help combat the spread of COVID-19. 

According to C-store IQ research, the definition of convenience, for most shoppers, is an experience that ultimately saves them time and effort: 41% of those surveyed said it purely comes down to having a “convenient” experience and 34% define this as a “quick stop/in and out.” 

Screen Shot 2020-05-27 at 11.31.10 AMThis need for speed extends to the checkout experience, where tap and pay rules. It’s the method of choice for 67% of Canadian c-store shoppers when asked: “How did you pay for your purchase during your most recent in-store visit to a convenience store?”

  •     35% used a debit card 
  •     31% used a credit card 
  •     30% reached for cash
  •     1% opted for mobile payment 
  •     1% used a gift card
  •     0.3% used a retailer’s mobile app

Of course not everyone has access to a debit or credit card, which highlights another key payment option—prepaid reloadable cards issued by credit card companies. In most cases, these are sold by c-stores alongside a wide-range of gift cards. The prepaid cards are convenient for everyday spending and suitable for people who might not qualify for a credit card, budgeting, privacy or for children as an allowance card. C-store IQ data shows that 6% of shoppers purchased a gift or prepaid card during their most recent visit—that’s more than those who purchased wine (3%) or e-cigarettes (3%). 

Overall, research shows younger shoppers demonstrate higher usage of debit and mobile payment compared to older generations. As a result, convenience stores will continue to feel the pressure to offer more digital or frictionless shopping, payment, and promotional solutions.

Screen Shot 2020-05-27 at 11.31.28 AMThat pressure is mounting in the era of COVID-19, with customers across multiple generations getting on board to minimize handling cash and the hand-to-hand contact involved with payment and making change. 

 The future is frictionless

Whether spurred by convenience or precaution, C-store IQ findings are in line with overall payment trends across Canada.

New technology and payments innovation are transforming the way Canadian consumers make payments, according to Payments Canada’s annual Canadian Payment Methods and Trends report: “In pursuit of more convenient, faster and secure payment experiences, Canadians are rapidly adopting newer digital channels, such as contactless (tapping card or mobile), e-commerce, mobile and online transfers.” 

  •     Contactless payments grew 30% year-over-year from 2017-2018 with a total of 4.1 billion contactless payments (card and mobile) worth $129.9 billion at the point-of-sale. 
  •     Debit represents almost 60% of volume of these contactless payments 
  •     Debit, often viewed as a convenient substitute for cash, overtook cash for the first time 
  •     Mobile devices were used by nearly 35% of Canadians for contactless payments on a regular basis 

“We are at a pivotal moment, with a number of key driving forces that are accelerating the transformation of Canada’s payment environment,” Cyrielle Chiron, Payments Canada’s head of research and strategic foresight, said in a statement. “Evolving technology and industry innovation are changing the game, fuelled by consumer and business demands for friction-free, fast and secure payments.”

To be adaptable is to be mobile

While mobile payments represent a slower uptake than contactless cards overall, nowhere is this more apparent than at the c-store level, according to data from C-store IQ. However, the 1% of shoppers who paid with their mobile during their last c-store visit doesn’t tell the whole story. Broken down by generation: 4% of millennials used a mobile payment or a retailer’s mobile app, compared to 1% of Gen X and less than 1% of boomers. 

Survey participants said they used mobile payment apps far more frequently during transactions with other retailers, such as grocery stores, big box and restaurants. This indicates the issue might be one of the payment option simply not being widely available at the c-store level.

In fact, when shoppers did have the opportunity for mobile payment at a convenience store, more than 80% rated their experience as satisfied or very satisfied. This further implies that speed and value are primary expectations of c-store shoppers.  

According to Global Payments, merchants who “start accepting digital wallets in an ecommerce environment consistently realize meaningful benefits. These include a familiar experience for consumers, enhanced security and a flawless customer journey that minimizes payment friction.”

There are generally two approaches at the c-store level:

  1. Accept payments via mobile wallets, such as Apple Pay, Samsung Pay and Google Pay. Basically, this means ensuring your terminal is programmed so customers can tap and pay with their mobile phone. 
  2. Create a branded mobile app with in-app payment functionality. This is an effective way to build brand loyalty and engage with customers through rewards and special offers. Starbucks does a great job of this. 

Overall, mobile payments represent a massive opportunity at the c-store level, especially when it comes to satisfying younger shoppers. And, in most cases, this doesn’t require a whole lot of work at the operator level if your terminal is already enabled for contactless card transactions.

Cash on demand

While digital payment methods are growing in scope, it’s worth noting that cash still has a valuable role to play on the c-store landscape—after all, it usually accounts for 30% of transactions. 

The Canadian Bankers Association emphasizes that while consumers are increasingly turning to digital channels and electronic payment methods (especially during the COVID-19 crisis) cash remains important.

In fact, in recent months, the Bank of Canada stepped in, “strongly” urging retailers to stop refusing cash payments to ensure everyone could access the goods and services they need. “Refusing cash could put an undue burden on people who depend on cash as a means of payment,” the central bank said in a statement.

Convenience stores also play an important role in ensuring Canadians have easy access to cash. Of the ancillary services offered by c-stores, ATMs came out on top, with 24% using an in-store ATM, according to C-store IQ data. In this case, millennials (29%) are more likely than boomers (20%) to use the ATM. 

The bottom line, according to data from C-store IQ, is convenience stores that prioritize simplifying the shopping and purchase steps are more likely to see rewards with increased traffic and basket size. This means operators of all sizes can benefit from offering multiple payment solutions spanning credit, debit, mobile and prepaid card acceptance. Whatever the motivation—speed or safety—as more consumers go contactless, they’re opting to shop at c-stores and gas sites that accommodate these payment solutions. 

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