Contactless Payments Have Little Impact on Cash Usage

Marie-Hélène Felt wrote the Bank of Canada’s Staff Working Paper 2020-56 'Losing Contact: The Impact of Contactless Payments on Cash Usage'.

It addresses an important topic for the future of cash, whether there is a causal link between the decline in cash transactions and the rise in contactless payments. The short answer is no, but the paper includes rich detail supporting that answer and highlights just how much impact the ‘cost’ of getting cash is and how it affects behaviour. In particular, ‘cost’ includes the distance to bank branches and Automatic Banknote Machines (ABMs).

The approach used

The paper builds on the extensive research already done in this area, using the latest data, assessing how the Canadian Financial Monitor (CFM) panel data estimates have varied over the sample period, investigating the heterogeneity in the impact of contactless credit cards (CTCs) across households using Finite Mixture Modelling and using a two-part model that properly takes into account the corner-solution nature of the dependent variable ‘cash share’.