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Losing Contact: The Impact of Contactless Payments on Cash Usage

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In many developed countries, cash payments are falling or already very low. At the same time, contactless payments are becoming more common around the globe. Because they mimic some desirable features of cash and are typically used for smaller-value transactions, contactless payment cards are a competitive alternative to cash. This study investigates whether contactless credit cards are an important contributor to the decline in cash transactions, based on Canadian panel data from 2010 to 2017.

I show that unobserved factors influence cash use, and these must be controlled for when estimating the impact of contactless credit cards on cash use. I also show the different effects that contactless credit cards have on the choice to pay with cash (the extensive margin) and on how much cash is used (the intensive margin).

I find that the use of contactless credit cards negatively influences how much cash is spent but not whether to pay in cash. Overall, the impact of contactless credit cards on the transactional demand for cash in Canada is small over the 2010–17 period, at about 3 percent. My results are in line with previous findings for Canada and elsewhere.