A game changer in payment habits: evidence from daily data during a pandemic

We explore the relationship between cash and other payment instruments using the outbreak of the COVID-19 pandemic as a natural experiment exogenously affecting both the payment industry and consumers’ habits. We rely on Google search data, as well as on the official series of new cases of infection to measure the intensity of the pandemic, and apply local projection methods to assess the effects on payment habits. We find a large and persistent substitution effect from cash to card-based transactions, especially using contactless and e-commerce options. The fear of infection has led to a new implicit cost associated to each payment instrument, thus affecting payment choices from the demand-side and boosting consumption with non-cash transactions. Moreover, technical constraints on the cash cycle and the lockdown measures have increased the demand for cash for precautionary purposes. Policies aiming at accelerating the digital economy and the most innovative means of payment can potentially make economic activity more resilient to adverse shocks. At the same time, ensuring the adequate and efficient availability of cash remains essential from a social and economic perspective.