Pandemic Payment Patterns in the Netherlands

The Dutch National Bank (DNB) studied how an external shock, the COVID-19 pandemic, affected payments in the Netherlands, using an extensive payment diary that ran from January 2018 to October 2020.

Contactless debit card usage increased sharply at the expense of cash, but the stated preference for paying with cash only reduced slightly. Older people were the big movers to debit card payments. The change did not follow infection levels but appears to reflect the restrictions introduced to limit the virus.

The Netherlands has been a big user of debit cards for some time, with cash usage steadily decreasing. In 2019 cash made up 32% of point-of-sale (POS) payments, while debit cards were responsible for 67% (contactless 43% and using a PIN code, 24%). 90% of debit cards are enabled for contactless payments.

Debit card usage increased by 13% at the expense of cash, and 60% of that increase persisted through the seven months of the study. At the start of 2020, cash was used for 31% of POS transactions. In the first two weeks of April this had fallen to 13%, recovering to 21% by the middle of October.

Enabling changes caused by the pandemic

The Dutch lockdown started on 16 March and was then steadily eased from 11 May until 1 July before being reintroduced on 14 October. A number of changes took place when the pandemic started:

• As part of the initial response, the contactless limit on single transactions was raised from €25 to €50 and the requirement to use a confirmatory PIN code for cumulative expenditure across a number of transactions was raised from €50 to €100.

• Shopkeepers posted signs actively encouraging the use of contactless payments.

• The Centraal Bureau Levensmiddelenhandel (CBL) – the Dutch organisation that looks after the interests of supermarkets – appealed to consumers to use contactless payments.

What happened elsewhere

The paper briefly touches on seven other studies that have taken place into the impact of the pandemic in 2020.

Chen et al in Canada carried out a survey in Spring 2020 and found that a third of correspondents were using less cash, debit and credit card usage was up but cash held as a store of value was up. Kim et al in the US found 20% of their May 2020 survey had switched to paying online or over the phone compared with 2019. More cash was held in wallets or stored at home.

The ECB’s July 2020 survey found cash usage down 40% and people expected to continue this post-COVID. The Danmarks Nationalbank found card usage up 30% and cash down 41%, although the use of cash increased once lockdown restrictions were lifted. Interestingly online payment levels returned to pre-lockdown levels.

Mínguez et al in Spain recorded both card and ATM withdrawal levels dropping 50% at the start of the pandemic. By the end of June card payments had recovered, but ATM withdrawals remained lower than in 2019.

Golec et al, an ABN Amro study, looked in the Netherlands at municipality level data, comparing regions that had high levels of infection and low levels of infection. The change to debit cards was higher in high level infection areas.

Finally, Kraenzlin et al in Switzerland studied payment behaviour at a regional level and found big differences depending on levels of e-commerce and cash substitution.

Hypothesis

Based on this desk research, the authors thought it likely that a large group of people would make the change to pay with debit cards. They would decide that the ‘cost’ of paying with cash would be greater than the ‘benefits’ – the risk to health, the convenience of using a card and the likelihood that a card payment would be accepted rather than rejected.

From the above, they created three hypotheses:

• COVID-19, and the accompanying measures, shifted payment behaviour at the POS after the start of the lockdown, resulting in a lower share of cash payments and a higher share of debit card payments.

• COVID-19, and the accompanying measures, has had a long-lived effect on payment behaviour at the POS, reducing the share of cash payments and increasing the share of debit card payments, and this continues after the lockdown ended.

• As a result of COVID-19, and the accompanying measures, the share of people who prefer to pay contactless at the POS has increased.

Final thoughts

The paper believes that social norms have played an important part in changing behaviour, with infection levels unimportant. The reduction in cash usage is significant and would, under normal circumstances, have taken about two and half years to take place. With debit card usage still 8% higher than pre-pandemic, the paper believes these changes are likely to persist.