Chicago’s new normal: Cashless, contactless transactions might become our default post-COVID-19

A similar switch happened after a 2016 cash crunch in India. This time, it could take hold permanently in the United States.

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Since the COVID-19 pandemic, many businesses have encouraged customers to pay via apps, credit or debit cards or online payments.

Since the COVID-19 pandemic, many businesses have encouraged customers to pay via apps, credit or debit cards or online payments.

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Before the coronavirus pandemic, cashless payment systems — from credit and debit cards to methods like Apple Pay, Venmo and Square — were growing in popularity, with some businesses in Chicago and elsewhere eschewing paper money altogether.

The arrival of the virus has accelerated that. And experts predict it will have lasting effects on how consumers use money.

Paying with cash already was declining among consumers, with paper money being used for about 26% of consumer transactions in 2019, down from 30% in 2017, according to the Federal Reserve.

A survey of small businesses in late March — after shelter-in-place orders took effect — showed a significant jump in cashless transactions. The survey, by the Electronic Transactions Association and analytics firm The Strawhecker Group, found 24% of small businesses reported an increase in credit card and debit card use during the pandemic. And 27% had seen an increase in “contactless” payments made through smartphones or cards that a customer taps to pay.

“You just tap, and it’s really secure,” says Jodie Kelley, the association’s chief executive officer. “You don’t have to touch anything.”

Public health warnings about the coronavirus staying viable on paper surfaces for up to 24 hours have some people worrying about touching paper money.

A survey of small businesses after shelter-in-place orders took effect showed a significant jump in cashless transactions.

A survey of small businesses after shelter-in-place orders took effect showed a significant jump in cashless transactions.

Even though experts say paper money isn’t likely to transmit the virus as long as people practice good hygiene, like washing their hands, many people are loath to touch something a stranger has handled.

The virus has prompted people to quickly change old habits, whether it’s using e-commerce with delivery or switching to cashless payments for items we still go out to buy.

Even those who hadn’t done a lot of cashless shopping are now ordering takeout with their phones, paying in advance and picking up their orders curbside, all without touching any paper money.

“I think all of those trends are just accelerating because of the pandemic,” Kelley says.

Finance professor Filippo Mezzanotti studied the 2016 cash crunch in India.

Finance professor Filippo Mezzanotti studied the 2016 cash crunch in India.

Northwestern University

Something similar happened in 2016 in India, when a government move to recall 500- and 1,000-rupee notes to counter a problem with black-market money created a crisis of not having enough cash in the country, says Filippo Mezzanotti, a finance professor at Northwestern’s Kellogg School of Management, who, with Nicolas Crouzet and Apoorv Gupta, studied the cash crunch.

The Indian banks weren’t prepared for the demonetization changeover, which quickly turned about 86 percent of all the cash notes in circulation into worthless paper. The bills were supposed to be replaced by new notes, but there was a lag in getting that done.

Desperate consumers shifted from using paper money to using phone-based cashless payment apps, accessible even for people who don’t have a credit or debit card.

“Essentially, the country moved cashless, or pretty much cashless, overnight,” Mezzanotti says.

After a couple of months, India’s cash situation stabilized. But consumers’ new habit of using cashless payment systems had taken hold. In areas with the worst cash crunch, the use of electronic payments remained higher even after cash returned because both merchants and consumers had made the switch.

Mezzanotti likens it to a snowball rolling down a hill, gaining mass and speed as it goes. Once you get enough people over the hump of using a new payment system, it’s likely that many will continue using it in the future, he says.

That’s especially true for payment apps, which are readily available and don’t have hefty processor fees for merchants.

Even when the coronavirus dies down, many people will continue to have hygiene at top of mind, no longer shaking hands, not wanting to touch a lunch buffet. And cash might carry a gross-out factor for years to come.

If the virus had hit before the fin-tech boom created cashless apps, people with credit cards would have been fine, while everyone else would have been left to stick with cash.

“If this would have happened 20 years ago, we would have had a lot of problems,” Mezzanotti says.

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