5 major coronavirus-driven changes to cash and retail in the U.K.

The global coronavirus outbreak has up-ended daily life for many consumers, including where they shop and how they pay for things. The U.K. is no exception, as issues of health and hygiene have now been introduced as important factors when it comes to both planned and impulse shopping.

“Human behavior is incredibly hard to change, often requiring time and resources to make it happen. It’s rare to get something to force drastic change, yet that’s what we have with the pandemic," said Vidya Peters, chief marketing officer at Marqeta.

The U.K. went into a national lockdown on March 23, forcing an immediate change to the retail landscape. Now as the country begins to exit phase one of the lockdown — easing travel, dining and shopping restrictions — payment choices, e-commerce importance and consumption behaviors are likely to be forever changed. Here are just a few key examples.

E-commerce has always played an important role for the U.K. retail shopping scene, having a greater influence than it does in neighboring European countries, and even more so in the coronavirus crisis. For example, local payment provider PPRO reported that in 2019, e-commerce as a percentage of retail was 19% in the U.K. compared to 14% for all of Western Europe. Certain European countries had below-average e-commerce penetration levels of total retail sales, such as France at 11%, Austria at 8%, Spain at 7% and Italy at 4%.

According to the U.K.’s Office of National Statistics, the average monthly penetration of e-commerce as a percentage of total retail sales spiked to 30% in April, the first full month of the U.K.’s coronavirus lockdown. March e-commerce penetration had risen to 21.9%, up three full percentage points from March 2019, at 18.9%.

While the increase in e-commerce sales can be attributed to consumers being forced to stay in their homes and shop for their goods and services online, there is the possibility that this level of penetration may remain high after the lockdown is completely lifted. The Financial Times cites research that a wide swath of the European continent is discovering the ease and convenience of online shopping while at home.

For the U.K., the coronavirus will serve to accelerate certain trends that had already been growing, such as online grocery shopping. In 2019, roughly 8% of groceries were purchased online, compared to nearly 4% in the U.S.
Cash usage in the U.K. has been under a heavy strain since the beginning of the national lockdown on March 23, as shown through data from the country’s national ATM fleet network operator, LINK. In the initial three weeks of the lockdown cash withdrawals, in terms of millions of transactions, were down about 60% in comparison to the same week in 2019. Since roughly mid-April, cash withdrawals have begun to rise slightly, although they continue to remain well below 50% of 2019 levels.

While there are conflicting reports on whether or not coronavirus can be transmitted through the exchange of bank notes and coins, the fact does remain that in a time when most consumers are worried about contact with frequently touched items such as doorknobs and elevator buttons, cash has the appearance of being dirty as so many people touch it.

It’s easy to understand consumers' aversion to cash when studies such as the one from London Metropolitan University released in 2018 found 19 different bacteria on U.K. coins, polymer £5 and £10 notes and paper £20 and £50 notes. In the study, two life-threatening bacteria were found — Staphylococcus aureus (MRSA) and Enterococcus faecium (VRE). The airborne bacteria, Listeria, was also found on the notes.

Reports of China and South Korea burning, disinfecting and quarantining cash during the early days of the pandemic have only added to consumer fears that cash could transmit the coronavirus, prompting many to seek alternative payment methods.
According to U.K.’s LINK, there's been rapid reduction in the ATMs available in the marketplace for consumers to use. In January there were 60,549 ATMs across the U.K., including 45,226 free-to-use and 15,323 pay-to-use ATMs. By the end of April, the total number of ATMs in the country had fallen to 53,195 — a reduction of over 12% of the installed base or 7,354 units. The biggest reductions were in fee-charging ATMs, falling by about 19%, compared to free ATMs, which fell by about 10%.

Much like the perception of cash being dirty, ATMs have had a similar reputation dating back for at least a decade, according to British media reports calling them “as dirty as public toilets.” A study by media outlet QuickQuid found that some of London’s dirtiest ATMs were located in some of the most popular tourist and high-traffic business areas, including Trafalgar Square and Piccadilly Circus.

The lower ATM usage and negative health and hygiene perceptions may be part of a trend in the U.K. of having fewer ATMs to serve the dwindling cash needs of the country.
Contactless cards were already growing in popularity prior to the coronavirus outbreak as banks, building societies and card issuers were finding that in certain applications such as transit, they were providing an enhanced value.

However, the ability for a country to switch to an almost entirely contactless payment experience in a matter of weeks would hinge on having a substantial number of contactless cards in the market. The U.K. is quite well positioned for a contactless payment conversion, as over 80% of the country’s payment cards are already contactless.

According to UK Finance, 82% of the U.K.’s 162.5 million credit and debit cards were contactless-capable as of February 2020, just one month before the national lockdown. Given the rise in popularity for contactless payments, it can be expected that the banks and building societies that have not yet issued contactless cards will do so in the foreseeable future.

According to PPRO, 96% of the U.K. population is banked, which means that the majority of consumers already have access to some form of contactless card — and in the case that they do not, there is always the opportunity to use a mobile wallet such as Apple Pay.
Learned payment habits provide consumers with a sense of normalcy and can be difficult to change without a significant amount of time and resources. While contactless card usage had been showing a slow and steady growth in the U.K., reaching a 50% tipping point of all transactions in 2018, the pandemic has led to an acceleration of adoption.

“Habits are being changed and will be permanent for many cardholders. And if another pandemic wave hits when we enter flu season in the fall, then no-touch payments may become forever dominant at the checkout,” said David Shipper, senior research analyst in the retail banking and payments practice at Aite Group.

According to a recent Mastercard survey and related data, 66% of its U.K. transactions are now contactless. This follows a recent Mastercard report that about 78% of its European transactions are now contactless and that the company expects the shift in payment choice will be permanent.

Mastercard’s survey of U.K. consumers found that three-quarters (76%) reported that with the pandemic ending, it wouldn’t change their contactless usage habits. Additionally, two-thirds (66%) stated that contactless is now their primary in-store payment method; and 21% had switched their primary card to one that enabled them to make a contactless payment.