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3 Ways The Pandemic Changed Payment Trends in Europe

In 1976, British economist Friedrich Hayek suggested an alternative to cash in one of his books. He suggested the replacement of cash with “plastic tokens” with electronic markings which can be sorted out by every cash register, and the 'signature' of which would be legally protected against forgery just like any other document of value. In 45 years we didn't just bypass that, but we also leapfrogged straight into digital payments networks.

The pandemic has been a catalyst for digital transformation and acted as an “innovation accelerator” for the economy. Many people experienced placing an online order for the first time, or having a job interview via video call, some even realized they can attend an entire event virtually. 

This article covers:

  • Europe’s journey towards a cashless society by looking at payment trends within the continent. 
  • The paradox of banknotes.
  • Germany’s decrease in cash usage.

Offline shopping highlights across Europe

Switzerland and Norway have relatively low offline payments compared to the rest of Europe, with offline payments representing less than 25% of GDP in these countries. On the flip side, Croatia, Russia, and Portugal’s, in-store payments made up over 72% of GDP. 

in-store payments share of gdp
In-store payments share of GDP in Europe. soruce: Statista

Online shopping penetration rates across Europe

Online shopping penetration, on the other hand, is high in most European countries. Consumers from the UK spent 200 billion euros on online purchases in 2019 – roughly twice as much as their French counterparts. And Germany was Europe's third-biggest online market, with a revenue of roughly 60 million euros.

online shopping revenue in the UK Germany and France
Online shopping revenues in the UK, France and Germany

Market share of cash in Europe

According to domestic sources, there are significant differences in the use of cash across Europe. Overall, cash saw the lowest use in the Nordics and parts of western Europe such as the UK, and France. However, cash saw the highest use in Hungary, Cyprus and Germany. That being said, it remains difficult to establish the exact use of cash as Europe does not have a unified approach for reporting payments.

Looking at the increasing popularity of eCommerce and at the declining usage of cash, it becomes clear that the pandemic has accelerated the use of alternative payment methods.
market share of cash in europe
Cash market share in Europe. source: Statista

The use of debit cards in Europe

A research report by the DNB revealed that the likelihood of debit card usage at the expense of cash has increased by 13% in the Netherlands. The pandemic has also had the largest impact on payment behavior for the elderly.

Furthermore, Research found that in September 2020, about 44% of consumers were using a debit card as their primary payment method for in-store transactions compared to 35% pre-COVID-19.

The paradox of banknotes

Funny enough, the European Central Bank recently reported that demand for cash grew by 11% during the pandemic, which is exceptionally high year-on-year, compared to a 5% annual growth over the past 10 years. The key driver for this growth in demand is the use of cash  for “precautionary purposes”. This is a prime example of the “paradox of banknotes’ where the demand for Euro banknotes has constantly increased while the use of banknotes for retail transactions seems to have decreased.

So where does Germany, one of Europe’s largest economies stand on the digitalization of payments?..

In Germany, where consumers are known for their preference for cash and their scepticism about cashless payments, the country is showing a declining usage of cash. 

A Euromonitor study expects the value of card payment transactions in Germany to surge by 28% from 2019 to 2025. Additionally, The German government further sped up the shift by doubling the transaction limit on contactless payments to €50.

The pandemic continues to have a profound on payments

Finally, it is undeniable that cash usage is dropping significantly even in the most stubborn markets. At the same time, the importance of cash cannot be denied. What's even more important is that there remains a portion of the population that for a variety of reasons are simply not able to perform cashless payments. Therefore, this minority cannot be excluded in the economy.  Our question of the day is, will cash make a comeback in the post-pandemic era?

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