By Deborah Matthews Phillips, AAP

The coronavirus outbreak is raising concerns about the use of cash as more Americans embrace digital technology to pay and get paid. These ongoing trends will have a significant impact on community bankers, consumers, retailers, and policymakers.

Payment Instruments and the Spread of Disease

To limit the spread of germs, China began disinfecting and isolating used banknotes to stop the spread of the coronavirus (COVID-19). Chinese banks use ultraviolet light or high temperatures to disinfect yuan bills, then they seal and store the cash for seven to 14 days—depending on the severity of the outbreak in a particular region—before recirculating them.

In a precautionary move, the Federal Reserve has begun holding dollars it receives from Asia before recirculating them amid concerns over the spreading coronavirus outbreak. Some payments experts are encouraging consumers to limit exposure to currency and coins that may carry germs by using their cards and smartphones to make “tap and go” payments.

Are the actions reactionary or operating out of an abundance of caution? While there is no definitive research that proves dirty money actually makes people sick, there is strong circumstantial evidence: influenza, norovirus, rhinovirus and others have been transmitted via hand-to-hand or surface-to-hand contact in studies, suggesting pathogens could readily travel a hand-money-hand route.

Digital Payments Increasingly Displacing Cash

The focus on cash and public health comes as digital payments and e-commerce are increasingly displacing cash transaction volume. In 2018, electronic payments surpassed cash as the preferred method of payment for the first time. It was also the first year cash was not used for most transactions under $10, according to a 2019 Federal Reserve survey.

To capitalize on these trends, businesses are making changes to their payment-acceptance processes, according to a PEW analysis. Some merchants have implemented policies that prohibit accepting cash in favor of card-based payments and digital payment methods to promote security and increase efficiency. They are also piloting cashier-less checkout, in which consumers can shop, skip the checkout line, and walk out with their purchases—while providing retailers greater insight into purchasing habits.

However, unlike Sweden, which is expected to become the world’s first cashless society by March 2023, cash persists as a popular payment instrument in the United States. Cash remains the number-one payment instrument for in-person payments, where more than one-third of transactions involve cash, according to the Fed’s 2019 survey.

Seventy-eight percent of consumers used cash at some point in the previous month, and cash remains the primary method of payment for 14 percent (more than 35 million adults), according to the PEW analysis. Cash is used among all age groups, but the share of cash use tends to be higher among individuals between 18 to 25 and those over 45. The PEW analysis also noted, some segments of the population are more likely than others to use cash, including minorities, households with incomes under $50,000, and unbanked consumers.

Consumers Still Like Cash as a Payment Option

Consumers like cash for a variety of reasons, according to the 2020 Health of Cash Study by Javelin. More than half of consumers say they pay with cash because it protects their privacy and helps control their spending. Many consumers appreciate cash as a stored-value instrument, keeping it on hand for emergencies. More than half of the consumers in the Fed 2019 survey, meanwhile noted they always carry cash; the average American consumer keeps about $58 in cash with them.

Most consumers desire the choice to pay anywhere with cash. Interestingly, community bank customers placed a higher value on the option to use cash than those associated with big banks—85 percent versus 82 percent, according to the Javelin study.

To meet the needs of customers that rely on cash, a few retailers that implemented cash-free policies have reversed course. Sweetgreen, the salad restaurant chain that went cashless in 2017, resumed accepting cash payments at all its locations last year. Amazon has retreated from its initial cash-free stance for its Amazon Go stores.

Implications for Policymakers

Cashless commerce practices have captured the attention of policymakers, some of whom are intervening to preserve paying with cash as a choice. While there is no federal statute mandating that a private business, person, or organization must accept cash as a payment, lawmakers are concerned that businesses that don’t accept cash impede equal access to goods and services.

Congressional Democrats proposed two bills in 2019, the Cash Always Should Be Honored Act and the Payment Choice Act of 2019, that would require retailers with a physical location to accept cash as legal tender, the Pew analysis found.

In the absence of national regulation, some states and municipalities are addressing the issue. In Washington, D.C., supporters of proposed legislation say cashless retailers exclude an estimated 8 percent of D.C. households that don't have bank accounts.

Massachusetts has banned cashless merchants for 41 years. New York City recently passed legislation barring businesses from prohibiting cash acceptance, joining Philadelphia, San Francisco, New Jersey and Rhode Island.

While policymakers address both the spread of COVID-19 and the shift in retail payments, it remains to be seen if the coronavirus outbreak will influence consumer choice in payment instruments. As more Americans practice social distancing by working from home and relying on ecommerce, the digital payments evolution may accelerate faster than expected.

Deborah Matthews Phillips is ICBA senior vice president of payments and technology policy.