14 December 2022 |

Maybe COVID Didn’t Change Payments That Much?


We all assume that COVID had a few effects on the fintech and payments ecosystem:

  1. That people used less cash, because they were paranoid about germs or whatever. (Turns out cash can’t transmit COVID anyway, but whatever.)
  2. E-commerce was red hot because, since everyone was forced to stay inside, more people were doing their shopping online.
  3. Mobile payments (contactless cards and mobile wallets like Apple Pay) were skyrocketing as well since people didn’t want to use their cards as much, and a lot of them didn’t require PIN codes.

There’s a ton of data that shows most of that is directionally true; but what hasn’t been well explored is whether those consumer behavior changes have remained consistent in a post-COVID world. And, based on a recent BIS study, it looks like things might have gone back to the norm.

In a recent Bank of International Settlements working papers, there’s new data that shows that cash actually increased in circulation during COVID, and a lot of the gains for mobile payments and card-not-present transactions have evaporated. Take a look at the graphic below:

Cash in circulation rose a ton in 2020, especially in emerging markets, and then tumbled in 2021. Contactless payments (the cards you have with chips in them) rose a ton over COVID but have started to plateau a bit. And card-not-present transactions have actually fallen a lot in the aggregate, now only slightly up compared to pre-COVID levels.

What does this all mean? Consumer finance was one of the most heavily impacted parts of our lives during COVID, especially in developed countries. We’re so used to being able to walk into a bank branch to have our financial needs met that when it was taken away from us, it led to a meteoric rise in digital alternatives. That had a trickle down effect—not just into the adoption of new payment methods but into the infrastructure companies powering digital financial options as well.

To me, this data is a testament to the fact that COVID era growth is probably more fleeting than we expected. Most folks assumed that consumer behavior would shift permanently, instead it looks more like things have regressed from COVID peaks but are still generally higher than pre-pandemic levels.