(Kitco News) – As the world marches towards adoption of central bank digital currencies (CBDCs) – with more than 94% of global governments and central banks exploring the creation and distribution of digital fiat – the 2023 Methods-of-Payment Survey Report from the Bank of Canada shows that physical cash still plays an important role in the spending activity of Canadians.
“Cash use has been stable over the last several years,” the report said. “One in five purchases (20%) was made with cash in 2023, similar to estimates from 2020–22 that ranged from 21% to 22%. The small decline in 2023 was not because of fewer cash purchases made but from relatively more card payments being made.”
“Cash accounted for 11% of the value of all purchases in 2023, which is also similar to findings from recent years,” the authors wrote. “The stability of cash use was mirrored in key metrics of cash management – rates of holding cash and making cash withdrawals from different sources have also been consistent in recent years.”
That being said, the survey also found that alternative forms of payment are on the rise, including the use of mobile apps and Canada’s Interac e-Transfer service.
“Payment alternatives to cash and cards were used by more Canadians in the past year relative to 2022,” the report said. “For example, almost 45% of survey respondents reported using some type of mobile app to make a payment, up from 37% in 2022. Interac e-Transfer was used by 58% of Canadians in the past year, an increase of 7 percentage points.”
Interac e-Transfer is a system that allows users to transfer money using an email address or phone number and is rapidly becoming the method of choice for Canadians.
Despite the increased adoption of these alternate forms of payment, “Holdings of cash and ownership of payment cards did not decline, suggesting a wider segment of Canadians who added new payment methods to the ones they already use,” the authors wrote.
Surprisingly, the study found that there has been minimal growth in online purchases since the start of the COVID-19 pandemic.
“The previous MOP survey report (Henry et al., 2024) documented the sharp rise in online purchases associated with the onset of the COVID-19 pandemic in 2020,” they said. “However, payment diary data for the last four years show that the estimated share of online purchases has levelled off at around 14% in terms of volume, and just over 21% in terms of value.”
“This trend mirrors Statistics Canada data on e-commerce retail sales as a share of total retail sales,” the authors noted. “While consumers recorded slightly more online purchases in the 2023 MOP diary, the number of in-person purchases also increased from the last two years.”
While cryptocurrencies have been touted as a growing alternative payment option, the study found that less than 3% of Canadians have used Bitcoin or other cryptocurrencies for day-to-day payments for two consecutive years.
“The most popular payment alternative is e-Transfer with an estimated 58% of Canadians having used it in the past year, an increase of about 7 percentage points from 2022,” the report said. “The payment alternative with the second highest adoption rate is online payment accounts (e.g., PayPal) at 35% of Canadians. Less than 3% of Canadians have used a cryptocurrency (e.g., Bitcoin) as a payment method, roughly the same as in last year’s survey.”
Widespread reluctance to going cashless was the primary reason cited for the slow uptake of cryptocurrency in Canada, which also suggests that Canadians see alternative forms of payment as cash equivalents.
In response to a question about stopping using cash in the future, the vast majority of Canadians said they have no plans to do so.
“The percentage of Canadians claiming they are cashless peaked at 19% in April 2020, just after the onset of the COVID-19 pandemic,” the report said. “Since then, the percentage has settled around 13%, including most recently in 2023. Meanwhile, 80% of Canadians in 2023 said they have no plans to stop using cash, which was the same as in 2022.”
“The pandemic was associated with a subtle change in the way Canadians view cash,” the authors noted. “In particular, Canadians had a slightly less positive view about its ease of use and wide acceptance by merchants. That being said, cash is still viewed overwhelmingly positively along these dimensions, as well as with respect to its security and low cost.”
“Similarly, over 80% of Canadians viewed contactless payments as being always or almost always accepted in 2023, the highest level ever recorded in the MOP,” they added.
“Cash demand, use and access are the three key components of the cash ecosystem in Canada,” the report said. “Demand for cash was stable in the decades before the COVID-19 pandemic. Between 1970 and 2020, the value of notes in circulation was between 3% and 4% of nominal GDP. Demand increased sharply at the onset of the COVID-19 pandemic in 2020, peaking at over 4% of GDP. While demand has declined over the last three years, it remains above pre-pandemic levels”
“At the retail level, consumers and merchants are the major players who determine how cash is used,” the authors said. “The market for payments is two-sided, where consumer usage drives merchant acceptance and vice-versa. Key results presented in this report show that consumers' use of cash remained resilient in 2023 despite effects arising from the COVID-19 pandemic. Canadian consumers continue to withdraw and use cash on a regular basis, and it remains a relevant payment method.”
For small and medium-sized businesses in Canada, “cash acceptance remains nearly universal – 96% of such businesses accepted cash as a means of payment in 2023, and 92% reported having no plans to stop using cash,” they said. “At the same time, payment card acceptance increased during the pandemic, reaching almost 90% in 2023. These trends reflect consumers’ increased use of contactless payments and other digital options.”
