Will Canada Go Cashless After the Pandemic?

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Yomna Albanna’s Moulins Lafayette counter has the advantages now known in retail in the era of COVID-19. The West Toronto bakery and cafe has a Plexiglas screen next to the cash register, with a bottle of disinfectant and the nearby electronic payment card reader. The table is completed by a handwritten sign: “Debit and credit card only”.

Albanna is not dogmatic about the implicit policy of non-payment in cash: her older customers prefer notes and coins. “Not everyone has debit or credit,” she said, “so I don’t really care.” Many others, however, now only use plastic, even for a $ 2.95 cup of joe. The reason is not difficult to understand: “They do not want to do with money. “

This story is being played out in an increasing number of retail establishments. Card readers are prominently displayed and, in some places, wiped with a disinfectant. Even better, many are now contactless, which means consumers can pay without touching anything.

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Data from payment agencies confirm that the pandemic has accelerated the growing reluctance of Canadians to use cash. Interac says number of contactless debit card transactions jumped 4% since the start of COVID19 crisis, and the average amount spent increased by 17%. The volume of Interac’s first electronic payments since the end of March has skyrocketed, up 62% from the same period last year.

The rush for banknotes and coins was so pronounced that even the Bank of Canada, which is responsible for the $ 92 billion legal tender in circulation, weighed in this month, notify retailers do not stop accepting money: “The outright refusal of cash purchases will place an undue burden on those who depend on cash and have limited payment options,” the bank said in a statement. CBC statement.

Yet one may wonder why Canada should not follow countries like Sweden and aim for the goal of becoming almost all or no cash. Sweden has seen the phasing out of cash (it is not completely gone) as part of a broader policy to digitize its economy. The Scandinavian country has also sought to bring part of its underground economy into cash by creating new tax credits for certain cash services, such as babysitting. As the Canadian government moves to toughen its anti-money laundering laws, it seems logical to reduce the amount of money in circulation.

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Canada is not far behind Sweden, where cash accounts for 13% of transactions. Only 15% of Swedes use cash, as NPR reported last year. Bank of Canada reports value of all point-of-sale cash transactions in Canada has plunged 54% since 2009. A Bank of Canada Payment Methods Research Study 2019 found that nine percent of Canadians no longer use cash.

The Canadian Payments Association, whose members advocate for the modernization of our payments system, also documented the “sharp drop” in cash in favor of ordinary or contactless bank cards, e-transfers, smartphone-based systems like Apple or Google Pay and prepaid cards. Even Chinese payment technologies like Ali Pay and WeChat Pay are widely used in Canada.

Maybe the pandemic shows us that at 21st century, money is no longer king. Quite the contrary. After all, if an invoice was last handled by an infected person, it may be toxic, like all these cashless signs.

But as consumers get used to using smart cards, many in the post-COVID-19 world may realize that notes and coins have become as archaic as paper notes or tokens. that transit agencies around the world have replaced in favor of electronic fare cards. Think of the other benefits. The checks go in the direction of the dodo. Counterfeiting, bank robberies and convenience store thefts are becoming increasingly rare. Fewer outrageous ATM fees draining your bank account. It sounds attractive.

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Indeed, this cashless pandemic, says Walid Hejazi, professor of economic analysis and policy at the Rotman School of Management at the University of Toronto, “is a call to action for policy makers to reduce their dependence to money. Everyone should be able to make payments using contactless technology. “

Even for cash buffs or agnostics, it’s not hard to think of transactions that would be difficult or impossible to manage without money: a $ 20 bill for the kid shoveling the sidewalk; the swear jar; this repair work under the table on the toilet in the basement.

Then, of course, there is everything that people give to the homeless. Toronto street nurse Cathy Crowe says that almost as soon as the pandemic emergency came into effect, the homeless noticed that pedestrians were no longer carrying cash. Gift card donations have skyrocketed, she said. But “you learn how many poor, homeless people buy things from stores,” adds Crowe.

The official position of the Bank of Canada is that banknotes and coins are inexpensive (no transaction fees), easy to use, provide privacy and security, and are always viable in an emergency (for example, a massive power failure). He also notes that while 99% of Canadians, including the very poor, have bank accounts, many are “underbanked” (bank charges are so high that they tend not to use plastic).

Hejazi, who is also director of the Rotman’s Business of Payments program, says policymakers are not pushing for a more cashless society for the sake of the poor. “There will always be some demand for money. The less obvious subtext rather involves the giant and viciously competitive form of payment market.

Most consumers don’t spend too much time thinking about industry to pay. Instead of, they think of paying and have their preferred formats: Paypal, plastic or Apple Pay, or other. But suffice it to say that the different actorsInterac, the credit card giants, etc.are all vying for billions of fees and jockey with each other to become the mode of choice for consumers.

What is also less recognized is that the Bank of Canada is not a disinterested spectator; he too has skin in the payment game. Thanks to an ancient concept called “seigniorage“The central banks collect interest on the notes they put into circulation. So much so that the revenues cover the operating costs of $ 533 million from the Bank of Canada, and a lot remains (everything comes back into the government’s coffers). The question is whether all entities in the payments world benefit, including the national agency that prints money, which system is best for Canadians in terms of ease of use and security?

While a spokesperson pointed out in response to my questions that seigniorage provides the lion’s share of Bank of Canada revenues and guarantees its independence, the institution’s financial dependence on seigniorage tends not to appear in policy documents on the importance of banknotes. On the contrary, as February 2020, Bank study points out that the decision to phase out cash in favor of a digital currency will only happen if we reach a kind of ‘tipping point’, with a growing consensus among consumers and businesses that cash will be discouraged or not accepted.

Sweden has reached this tipping point and Hejazi says that countries like Belgium and China are not far behind. Canada He still officially loves paper money, as well as checks, the commercial usefulness of which has also been questioned at a time when people cannot go to the office to sign, mail or retrieve them.

The looming question, however, is whether the pandemic has prompted enough consumers to swear coins and banknotes to force policy makers to act. Back at Yomna Albanna’s café, she wonders if her customers will return in cash once the public health authorities have rung the virus.

Last year, the Bank of Canada released a windy post on his blog explaining why the reports of the death of cash were, as the old saying goes, greatly exaggerated: “It is the preferred payment option for small-value purchases like a cup of coffee or a muffin. In fact, the lower the value, the more likely the buyer will choose cash. ” As the past six weeks have shown, Albanna customers could beg differently.

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