Financial Futures Podcast – Season 1 Episode 1
In the age of COVID-19, many of us feel more squeamish about paper money and the germs that may be hitching a ride on it. Across the world, people are using way less cash. But the pandemic only accelerated a trend that was well underway, with the rise of contactless cards and digital payment apps making a cashless society more appealing than ever.
In the debut episode of “Financial Futures,” we ask: Does COVID-19 spell the death of cash? What is a cashless society? What would a cashless society look like, and do we really want to live in one? And how can financial institutions attract a new generation of customers ready to ditch the clutter of coins and bills, while weathering uncertain times that leave others longing for the comfort of cold, hard cash?
Melissa Kopp joins us to offer her take on these questions as director of business development at FIS, a global leader in financial services technology.
We talk about:
- How consumers and merchants have embraced contactless payments during the pandemic
- The benefits and risks of a cashless society, and who it might leave behind
- What we can learn from Sweden, a trailblazing model of a (nearly) cash-free country
- How financial institutions can adapt and lead the way into the digital payments future
Tune in to our next episode, Transcending our little pieces of plastic.
ERIN DANGLER (HOST): Melissa Kopp remembers that moment when she realized the coronavirus pandemic had permanently changed her relationship with cold, hard cash. Her local Starbucks had just opened up again, and she couldn't wait to get her fix.
MELISSA KOPP: I was sitting in the drive-thru, and there was a car in front of me, and this gentleman was paying with cash.
And I remember watching him hand the cash to the barista and watched her hand grab it from his hand. And for the first time ever, I got chills and was completely disgusted by the exchange. And I'm thinking in my head, I never would have felt that way if it weren't for COVID.
ERIN DANGLER: Melissa isn't alone in feeling squeamish about paper money and the viral pathogens that may be hitching a ride on it.
People are using way less cash in the age of COVID, but the pandemic only accelerated a trend that started long before. Melissa knows all about that. She is the director of business development for FIS, a company that is a global leader in financial services technology. But even for Melissa, that feeling she felt in line at Starbucks – that raw aversion to cash – that was new, and it made her realize that changes we're making in the way we pay might be here to stay.
MELISSA KOPP: And again, I've been in payments all my life, and that was the first time it really clicked with me. Man. I don't want anything to do with that anymore.
ERIN DANGLER: This is “Financial Futures,” the podcast that charts the frontiers of fintech innovation, where we explore the trends that are already transforming financial institutions and the technologies we'll need to prosper in a brave new payment landscape.
I'm your host, Aaron Dangler. And today on the show we ask, ”Does the COVID pandemic spell the death of cash? What would a cashless society look like? And do we really want to live in one? And how can financial institutions hold onto a new generation of customers that craves the convenience of a cash-free lifestyle?”
FIS’ Melissa Kopp joins us today to help us answer these questions and more. Welcome, Melissa. How are you doing today?
MELISSA KOPP: I'm well, thank you. Thank you for having me.
ERIN DANGLER: What trends were we seeing in cash and payments before COVID shut everything down?
MELISSA KOPP: Well, cash was king, right? I think pre-COVID most of us, across all age demographics, carried some form factor of cash in our wallets, right? Certainly, we weren't afraid to transact with it and hand it over to the barista at Starbucks when we were buying our lattes. And the change: It was all over the place; now, it's it seemingly disappearing post-COVID. So, it's led to pretty unprecedented concerns about viral transmission via cash.
So, things we were previously not scared about, now we think twice about.
ERIN DANGLER: Definitely. We were seeing a move towards digitalization prior to COVID, right?
MELISSA KOPP: A little bit, slowly – very slowly. And no surprise here that in the United States that we were behind most other countries in terms of our adoption of contactless payments, mobile payments, you know, even transacting within e-commerce. We were getting there, but like I found myself pre-COVID saying, “It’s not much quicker for me to pay with my phone than it is to pull out my card.” Now in my brain, I'm thinking it's much cleaner and more hygienic for me to tap my card then then to pay with cash – or to be able to pay with my phone.
So, we've had a mind shift change here, which has really escalated our transition to contactless payments away from cash signages appearing in most places. Pre-COVID when you walked into a retailer or a merchant, you didn't really see much in the way of signs that said, “We prefer you pay with your card,” or, “We were no longer accepting cash” in some places, right? We didn't see those types of things. So, the average consumer now has been presented with it right in front of them. And now they're thinking about, “Well, I didn't even know these options were available to me to transact.” And in fact, Visa has reported that there’s a 2,060% increase in the conversation about contactless alone. That is staggering.
So that means that we're all hearing about it and seeing it when we are venturing out – if we're venturing out.
ERIN DANGLER: So, Melissa, it's interesting that you're talking about seeing signage where cash is not allowed. It seems counterintuitive. Growing up, I remember getting penalized for paying with a card. You know, businesses wanted cash because they didn't have to pay any fees on it.
MELISSA KOPP: Yeah. So, it's changed completely from when we were growing up, right. And I think that retailers are also seeing that. I think that the thing behind the fees and, “We'd rather have cash,” is, you know, the retailers didn't want to have the interchange implications that come along with accepting payments, and more specific, payments by a card – and more specifically, low-dollar transactions, right? But now the volume that they can see coming in is far outweighing that, and now [they need to be] keeping up with the demand that I'm not carrying cash anymore in my wallet. “I don't want to actually physically interact with you and hand you cash” is really driving change on both sides of the counter.
So as consumers, we are changing our behaviors, and now what's happening is the retail environment is catching up. So, if we were to rewind, let's just say a year before COVID, many financial institutions probably would have stated, “You know, I'm not going to invest in contactless capabilities because the merchants in my local hometown don't accept it. Why would I make that step?”
Now what we're seeing is that the retail environment is catching up. They know that they’ve got a lot of work to do to make sure that they are activating acceptance on their side. So, it's all coming together, and I think we've advanced years in a matter of months here as a result of COVID.
ERIN DANGLER: Yes, I am getting less reluctant. If I can use sort of a double negative there in using contactless payment myself, it's been a long, it's been a long road for me. So now we've touched on this a little bit already about how coronavirus lockdown measures have affected cash use, or, you know, we've talked about people not wanting to touch cash, both consumers and retailers.
Are there any other ways that coronavirus has affected cash use?
MELISSA KOPP: I think from our perspective, if you think about maybe ways in which we use to pay folks back for lunches, right? I think coronavirus has now gotten folks to think more about a P2P solution. So, let's talk about Venmo or Zelle® or Square Cash – any way in which you can electronically pay some folks back for lunch.
And if you're not venturing out for lunch with friends, P2P has begun to develop new use cases. And by that I mean, think about maybe some elderly neighbors that you have. You aren't able to get out right now or don't want to get out due to the virus. P2P has really developed use cases for being able to pay folks back who can go out and do your shopping for you.
So, we're starting to see a lot of new use cases around P2P evolve. And I think that COVID driving the disappearance of cash in those cases is having a profound effect.
ERIN DANGLER: A lot of that disappearing cash might have vanished for good. Melissa says changes in consumer behavior are likely to outlast the pandemic.
MELISSA KOPP: What we're seeing is that around 30% of consumers have started using contactless payments since COVID, and about 70% of them say they're going to continue post-COVID. And what happens when you get into that new behavior and you realize how much easier and cleaner it is to use, and it's quicker, right? And if you think about it, that's likely a behavior that's going to stick.
Now we have a ways to go here in the United States to clean up the actual contactless experience. Just the other day, I was out using my contactless card and I tapped it and the POS device asked me to confirm the amount was correct. So, I had to push a button, and then it asked me if I wanted a receipt, and I had to push a button. And in some cases, it asked me to put in my pin, and I'm like, “This is completely pointless. The point of tapping a card is because I don't want to touch your terminal.”
COVID has really highlighted our deficiencies here in the States, and it's different from merchant to merchant. But the good news is those things are easily fixed. We're just now on a path to understanding the various friction points that we need to clean up.
ERIN DANGLER: It was really interesting for me in researching prior to this interview and just seeing how far behind the United States is. But as we're talking about moving to contactless payment and possibly a cashless society, what are the benefits? Are there benefits to living in a cashless society?
MELISSA KOPP: Yeah, so think about helping to fight crimes and tax evasion. And then think about if we're in a cashless society, how biometrics – whether we're paying with the use of our face or with our fingerprint –can make digital payments safer than cash. Digital payments cost a lot less to process than their cash equivalents. And some might think, well, that doesn't make any sense, but if you think about the cost for a merchant or retailer to handle cash payments, you have to start thinking about it. The work that is connected to cash. They work to count the bills to return the change. And there are also fees for cash in transit service companies, the armored car services, right? And insurance companies have higher fees if a store handles a lot of cash because of the risk of robberies.
So, there are a lot of reasons why we should believe that there are benefits to a cashless society.
ERIN DANGLER: But along with those benefits, Melissa says completely transforming to a cash-free society presents some difficult challenges and serious risks.
MELISSA KOPP: There are data security concerns, privacy concerns. Infrastructure is a big piece, and especially [so] here in the States, right? Our financial infrastructure here, there's not ubiquitous support for digital payment functionality. We're not as advanced as the rest of the world. There's a lot of infrastructure investment and integration that our financial institutions and our merchants need to invest in to really get to where we have a stable ecosystem here for a true cashless system.
I think the bigger problem is the disappearance of banks where businesses can deposit bills and consumers can go to the cash out. So, if we are trending towards a true cashless society, but we still have the need for cash, what does that landscape look like when folks are going out and who actually need to get access to cash?
So, it's a balancing act.
ERIN DANGLER: There are already some places in the world where these questions about balancing the benefits and risks of a cashless society aren't merely hypothetical. Countries like China, the U.K. and Australia have made much more progress toward eliminating paper currency than the United States, but one country that's head and shoulders above the rest is Sweden, where card – not cash – is king.
MELISSA KOPP: Sweden is among the countries where cash is used the least, you nailed it. And at the start of 2018, just 1% of Sweden's GDP was circulating in cash, compared to 11% in the eurozone and 8% in the United States. So, they believe too, to my earlier point, that it is a lot more costly for the merchants and retailers to handle cash for all the reasons that I mentioned before.
And while the country's businesses like the security and ease of logistics and operating cash-free, Swedish consumers really enjoy the convenience. They use their bank cards when they're buying food or clothes or tickets to the movies.
And they also use a payment app called Swish for transferring money to friends, kind of like a proprietary P2P solution in Sweden for splitting the bill in a restaurant. They launched that [app] in 2012, and it's become their most popular payments app. It’s backed by the main banks, and it's used by about two-thirds of the population. They hate cash, and they think it's truly dirty, and they've done some very – in my mind – kind of “Star Trekkie” things and went so far as to enable customers to purchase products using a microchip that they inserted into their hands under the skin,. no lie.
ERIN DANGLER: I'm sorry, that I did not hear about that. Okay!
MELISSA KOPP: Yeah, it's craziness. I say that, [but] that'll be here before we know it! We're already kind of doing that with our pets. And I think we've done that with our children too, in some cases to be able to track movements and activities and things. But around 5,000 Swedes have bought the – they're called Biohacks – chips. So, they've got them in their hands under their skin. They can pay for travel and snacks at the gym’s vending machine, or even, you know, gain access into an office with just a wave of their hand. So, to say that they're far ahead of us is an understatement.
ERIN DANGLER: What do you think the difference is? I mean, the Swedish government, what have they done to support the development of cash alternatives?
MELISSA KOPP: Advanced infrastructure. They have really all come together with a unique understanding that they want to be the prominent example of making sure that they're staying ahead of the fintech players.
Right now, they love the fact that cash usage is on the decrease because that's where they play, right? They play in digital. They play in [e-commerce]. They play in experience. They can't play with cash. They are loving this. Sweden, I think, saw that [they] have an opportunity to get ahead. Not to say that they've got it all figured out.
Because there are parts of their population, especially in rural areas where folks aren't able to transact digitally or transact with their cards: They still need that access to cash and the availability to go out and get it. Like I mentioned before, isn't as convenient as it used to be.
And there are many use cases in Sweden where they have found that folks who are unbanked or folks who [are in] awful cases of domestic abuse where partners needed access to cash so they couldn't be tracked. There are tons of cases like that, where they're finding that there are two sides to the story. So, they don't have it all completely figured out. But in terms of cash usage, they are by far the lowest that we're seeing across the globe.
ERIN DANGLER: You mentioned about the smaller businesses, rural areas. I've also seen that not nonprofits have had the same issues. The elderly demographic has had some challenges getting on board with it, as well.
MELISSA KOPP: Yeah, they have. And not unlike my grandma and my grandpa, [who] probably still have some cash stuffed under their mattress. That's not going to change.
And in the mind of a lot of people, cash represents stability. Especially when we are in an economic environment, like we are now, with uncertainty. Here in the United States, we're in an election year, a very unique election year. I should say, 2020 is unique all around, but people are doing some strange things to protect their cash. And that represents a stable infrastructure for them should something happen, should the worst happen.
ERIN DANGLER: Well, and it's interesting that you bring that up about politics. One thing about Sweden and Scandinavian cultures in general is that they have a trust in the government. They trust in the system. They trust in authority. Do you think that's helped with their move towards a cashless society?
MELISSA KOPP: Yeah, I think so. Right in Denmark, I'll use as an example, many types of payments usually done with cash are also going electronic. The church collection boxes and the street performers in Denmark are now accepting mobile payments.
ERIN DANGLER: What are the key takeaways from Sweden and their intentional phasing out of cash. What can we learn?
MELISSA KOPP: I think we need to learn a lot about what they've done from an infrastructure perspective. I think we need to learn about how they have addressed security concerns.
We need to learn from what their government has done or what they haven't done. Because, like I said, that. there are two sides to the story over there: those who believe and those who don't. Other countries are transforming quickly as well. But I think that what our financial institutions on our merchant structure here need to take away from that.
As you know, we all need to come together to think very methodically and prescriptively about this because the end goal is the same for everyone. And that's to enable a seamless and more hygienic commerce experience, whether it be over your phone, over the internet or in person at a physical merchant.
I think we all need to think about that, but there are a lot of infrastructure considerations as well as security considerations, but we also need to keep in mind that cash still has a role in our society and think about those specific use cases that I mentioned before where cash is a necessity.
I'm not a believer that cash should go away completely. I think it needs to continue to play a role, and we're never going to be, I think, in that ubiquitous state where everyone is operating off of the same infrastructure to be able to support a truly cashless society, nor do I think we [should] be.
ERIN DANGLER: Sweden's experience suggests we may be in a state of limbo for a while longer, somewhere between needing cash and wanting to use less and less of it. All of that puts financial institutions in a difficult position. So, what can they do to attract new generations of customers while holding onto those who, in a post-COVID world, still want the sense of security that comes with holding hard cash.
You talked about that you still think that there's a place for cash: It does help that feeling of safety and security. So, regarding the impact of COVID, what are some of the concerns surrounding. bank liquidity.
MELISSA KOPP: Interesting question. One of the reasons why we rely heavily on cash is liquidity is really essential for our consumers to remain confident in the entire financial system.
And, you know, thinking back and following the global financial crisis, banks’ buffers have become much more robust. But liquidity may soon dwindle as banks start to introduce a number of measures to prop up their corporate clients, as well as the economy, which includes emergency funding for repo markets, debt restructure, new credit lines, huge credit drawdowns and much more.
So, while a viral pandemic is conducive to the establishment of cashless societies, the pressure on banks really is not. If I think that my bank is about to go belly up, I'm going to go get my cash out. And here it goes under the mattress again.
ERIN DANGLER: A run on the banks.
MELISSA KOPP: Yeah, liquidity is essential for us to remain confident in the entire system.
ERIN DANGLER: Which financial institutions will be most impacted by a cashless society, for better or worse?
MELISSA KOPP: Those who had not already invested in digital infrastructures within their walls. Think about digital onboarding capabilities. When COVID began and the branch infrastructure basically shut down, if your financial institution did not offer you the ability to interact with them digitally, either through a website or through your mobile app, then [the institution was] severely hurting.
And you think about the financial institutions who did not have the capability built to onboard new clients. During that time, clients who needed to establish a checking account, if [the institution] didn't have that digital capability, [it was] losing. Those financial institutions who had invested were ahead of the game, those financial institutions who already had contactless methods of payment out in the market.
Now everyone, regardless of infrastructure, saw the decline in transaction activity for a period of time, both credit and debit. What we're seeing right now is credit starting to creep back up just a bit. Commercial is still negative: People aren't traveling for work right now, not buying airline tickets or staying in hotels. So, travel and expenses [are] down.
The interesting shift that we're seeing now is we're seeing debit spend is starting to cannibalize credit spent. And the reason behind that is the public only wants to spend what they know they have right now. So, a debit card is drawing the funds right out of your checking account, whereas with credit, you're building up a balance. So, there's been a shift in behavior towards, “I don't want to build up that balance because I don't know what my future looks like, so I'm only going to spend what I know I have in my account.”
Financial institutions who have guided their cardholders and their consumers along the way to help them understand the ways in which they can pay, the ways in which they can interact with [their institutions] to understand balance activity or to understand what funding looks like in their accounts, have done really well for themselves.
ERIN DANGLER: You may have already answered some of this, but what do consumers and users expect from incumbent retail and commercial banks?
MELISSA KOPP: So, I think that they expect the experience. Amazon is a great [example],.from the dangerous “buy it now” button or just the ease of navigating through the application, we expect all of those things in a digital experience from our financial institutions.
Now I'm not saying that each financial institution needs to go out and be Amazon. We can't do that. But what we can do is take a look at all the various different touch points that we have with our consumers, bring that together, integrate the experience for them, make it simple for them to interact with [the institution] when they need customer service.
Think about digital ways in which you can interact with them, but also keep in mind that you need to rethink the feel of your branch experience, as well. This is a time where everything has been on the table in terms of reevaluating, and I think that a lot of our financial institutions have really stepped up and not only repurposed staff for various different functions, but they've realized that some of this [branch experience] we don't need anymore. We can reinvest some of this overhead we've been consuming here.
There are better ways to do business, and I think that this has really brought to the forefront for them the need to focus on the true cardholder experience, which I could not be happier about.
ERIN DANGLER: Are there any implications for other types of financial institutions, like investment banks, brokerage firms, mortgages?
MELISSA KOPP: You named it. A lot of them are in the same boat, and some of them – some of the brokerage firms and the investment banks – are far ahead of where the traditional consumer commercial banks have been.
The investment banks and the brokerage firms have had to have a digital presence for a number of years. Shares need to be transacted back and forth; that's not a physical transfer. That infrastructure has been in place, but again, there are still pieces that can be improved upon, and I would throw mortgage and insurance companies in that mix as well. The biggest piece, I think, of what everyone is learning is that not only do we need to think about the implications of our cardholders being able to digitally transact but think about all of the back-office operations.
I'll use these mortgage and insurance companies and investment banks as an example. Back-office operations that maybe were paper-based or maybe functioned off of ACH transfers, when you weren't able to go in and actually write those physical checks to your suppliers, or you weren't able to get in to make those actual transfers because your branches were shut down, that brought to light for them the need to digitize [their] back-office operations, as well.
So, we're seeing a ton of that take place right now, for the better. It was eventually going to happen, but this has just expedited the change, which I think is really just going to bring a lot of efficiency to their operations, which is going to transfer again into that better customer experience.
ERIN DANGLER: Right. Do financial institutions need to better inform consumers about cash alternatives? Is it their job?
MELISSA KOPP: Oh, it's everyone's job. It's everyone's job. And I was sharing the other day, I was chatting on a panel with some other folks from the industry, and I said we are pushing, pushing, pushing our financial institutions towards getting contactless cards in the hands of their cardholders, but, we should all should be pushing education: how to use it, what to look out for. I said, on the other side of the coin, the merchants need to step up as well. They need to place signage at their locations that tell the consumer that [the merchants] accept contactless payments. It's the simple little logo, right? Place a sign there.
I've had to ask several times when I've went to transact, even at a larger merchant, ”Do you accept Apple Pay?” or, ”Can I pay with my watch?“ and sometimes they look at me like I'm crazy. Other times they're like, “Oh yeah, you absolutely can.” Well, why don't you tell me that? Why do I have to ask? Just invest in the time to let me know how I can pay.
We'll get there. It's not a hard, it's not a hard thing to fix, but it's collaboration. It's everyone working together alongside our fintech partners.
ERIN DANGLER: So as we wrap up our conversation, you've touched on this a little bit, and I know you don't necessarily have a crystal ball, but would you say this is the death of cash?
MELISSA KOPP: Not just yet. I think we're going to see it begin to be displaced. If I can say that you [should] use the “displaced” word, that d-word instead of the “death” word. I think we're moving closer. I think we are going to find ways in which it's more hygienic, it's quicker, it's more efficient to pay with a digital device or a contactless card.
But I think in many use cases, cash will be here for a while, at least in the United States. You know what change is inevitable, no matter the circumstance, but, really, how we adapt and evolve is really going to define our future – and more importantly, how quickly we pivot to meet the transaction and to meet the cardholders’ needs and build around the experiences that they value and use.
It's going to define our success. I know we've got a lot yet to get through here, but I think as long as we apply what we've learned, we listen, we educate, we speak in terms of experience, that resiliency will prepare us for whatever that next new normal [is].
ERIN DANGLER: Well, it has been lovely speaking with you today, and I will be thinking about you as we move towards less cash.
MELISSA KOPP: Thank you for having me
ERIN DANGLER: Melissa Kopp is the director of business development for FIS.
That's it for today's episode of “Financial Futures.” Join us again next time when Melissa will be back to talk about designing the user experiences that will bring us into the future of payments.