The circulation of cash that passes from hand to hand can lead to infection with the corona virus, which is why governments all over the world are forced to review the practice of its use. That's why covid-19 can become a catalyst that will eventually help electronic payments become the main payment method. It is therefore not surprising that the digital payments industry has already focused on the opportunities this crisis opens up.
The Chinese government has decided to disinfect and even destroy banknotes in order to stop the spread of the virus, at least in the short term. The newspaper "South China Morning Post", which is published in Hong Kong, reported that the branch of the People's Bank of China in Guangdong Province was destroying money that could have circulated in high-risk areas, in hospitals and markets. Fearing the importation of contaminated money from Asia, the United States Federal Reserve has quarantined dollar cash arriving from that region.
Such actions are probably justified because money in circulation, like mosquitoes, can indeed become a means of transmitting pathogens. According to research data, the human flu virus can remain alive and contagious on banknotes for 17 days. Therefore, it will not be an exaggeration to assume that cash plays an important role in the transmission of covid-19.
Either way, many countries will consider the option of sanitizing, destroying and reprinting money. But whatever they decide, one of the consequences of the epidemic is already obvious: the corona virus will accelerate the transition of the young generation to electronic payment, especially in Asia and especially in China. That greater tendency is now very strong. At the end of 2018, about 73 percent of Internet users in China used online payment (compared to 18 percent in 2008).
Young people tend to be more open to new technologies, and the population of China and Southeast Asian countries is significantly younger than in Europe and the United States. In addition, the Chinese government is actively promoting its online banking infrastructure, while Western countries rarely use a top-down management approach and lag behind Asian countries in adopting digital payments.
There are also internal and structural reasons that explain the slower pace of acceptance of these technologies in Western countries. For example, there is no major technology or financial company involved in the digital payments sector in Europe. And that is why European consumers and businesses are forced to rely on services offered by large American companies - Apple Pay, Google Pay, PayPal and so on. And out of concern about leaving key sectors of the digital economy to American technologists, the European Union used a slower, more cautious approach, favoring those changes that least disturb the European infrastructure of financial transactions.
The pace of change in the West has also been slowed down by cultural habits. Americans and Western Europeans, in part, rely more on cash than households in Asia. According to data from a recent survey conducted by Deutsche Bank, a third of respondents in developed countries consider cash the most preferred form of payment, and more than half think that cash will always be in circulation. It takes time to change deeply rooted cultural habits without provoking social resistance.
And yet, the global spread of covid-19 may force the world to a turning point when it comes to its relationship to payment methods. It is too early to predict exactly what kind of changes may occur, but they will most likely occur through solving specific problems that arise in different national contexts, in different payment infrastructures and demographic groups. A promising example of what to expect is digital versions of cash like the recently announced Swedish e-krona.
Apart from covid-19 and the growing popularity of cashless payments in stores, there are other ways people may want to switch to cashless payments. For example, during a Deutsche Bank survey, it emerged that a factor such as convenience plays an important role in an individual's decision whether to switch to digital payment. Digital wallets are free and easily available. In addition, going digital tracks costs and budgets. And from a security point of view, forgoing cash reduces the chances of being physically robbed.
Apart from China, today's crisis has not yet forced most countries to introduce disinfection, destruction and reprinting of money. But covid-19 can outgrow the once-in-a-hundred-year pandemic. This was recently warned by Bill Gates in his article in the "New England Journal of Medicine". In the fight against a pathogen that appears once in a hundred years, solutions that are adopted once in a hundred years are also necessary. And already now, the starting position is obvious: to speed up the transition to digital payment.
J. Braunstein is a fellow at the Center for Science and International Relations at Harvard University
M. Labor is a macro strategist at Deutsche Bank
S. Silva is a PhD student and fellow at Harvard University
Copyright: Project
Syndicate, 2020.
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