"Payment Radar" of Latvijas Banka: Non-cash settlement volumes are increasing, but cash also holds its positions

The latest "Payment Radar" of Latvijas Banka suggests that the non-cash settlement volumes continue on an upward path in Latvia, while at the same time cash also retains its major role.

The present overview contains information on money usage habits of Latvia's households, businesses and the general public. The "Payment Radar" is published semi-annually and available on Latvijas Banka's website. The development of the proportion and interaction between non-cash and cash payments is the overview's central measurement supplemented by more detailed numerical information and experts' commentaries.

The September edition of the "Payment Radar" suggests the following:
– the proportion of cash and non-cash settlement executed by one inhabitant of Latvia constitutes 44% and 56% respectively (in terms of the number of payments made);
– when projecting the extent to which cash will be used in daily settlement after 10 years, 37% of the population foresee that it will remain broadly unchanged, 29% consider that it will decrease, 11% envisage that cash will not be used anymore in 10 years' time, but 5% believe that its share will increase;
– 262.1 million non-cash payments totalling 92.8 billion euro were executed in the first half of 2019;
– more than 60% of non-cash payments were executed with payment cards;
– in the first half of 2019, the volume of instant payments reached 2.6 million and their value was 477.2 million euro;
– the population's viewpoint on the future of 1 cent and 2 cent coins is divided: 50% of the population consider that 1 cent and 2 cent coins should remain in circulation, but 41% support their withdrawal from circulation.

The "Payment Radar" employs the results of the population survey carried out by a market and social research agency "LATVIJAS FAKTI" in August 2019. Aigars Freimanis, Director of SIA "LATVIJAS FAKTI", Harijs Ozols, Member of the Board of Latvijas Banka, and Ģirts Jansons, Deputy Head of the Cash Department of Latvijas Banka have commented on the recent trends in the development of non-cash and cash usage.

"The respondents can be divided into two opposite groups according to their projections vis-à-vis the use of cash in 10 years' time, but technological development is a key argument for both of them. One group believes that cash will ease settlement, make it safer and faster, while the other one considers that technological development will involve errors or failures; therefore, the importance and security of cash will continue to play a role in settlement also after 10 years" emphasises Aigars Freimanis.

Data from the August survey show that each adult in Latvia makes 13.7 payments on average within seven days, over half of them being non-cash payments. The number of instant payments is soaring, i.e. 28% of respondents stated in August that they use instant payments on a daily basis, whereas half a year ago, in February 2019, only 19% of survey participants responded in the positive.

Harijs Ozols: "Businesses active in fintech, e-commerce, trade, the provision of services and other sectors have an opportunity to develop new payment services via the infrastructure provided by Latvijas Banka. Commercial banks also benefit from this infrastructure which contributes to improving customer services."

28 August 2019 marked two years since Latvia, the first euro area country to introduce instant payments – innovative, modern, instant interbank transfers available 24/7, including weekends and holidays. In the course of this short period of time, instant payments have been made available to more than 90% of credit institutions' customers and have acquired the status of standard interbank payments rather than that of an exclusive service. Overall, more than 6.5 million instant payments totalling about 1.3 billion euro have been made. It is projected that the number of the banks using the instant payment structure will continue on an upward trend and that the existing users will also expand the use of instant payments in their products, thus making instant payments available to almost every household and business in Latvia.

"It was at the beginning of August that the general public learned about another innovative solution, i.e. an opportunity to make interbank payments indicating the payee's mobile phone number only, without the need to know and enter the respective current account number each time when a payment is made. AS "Citadele banka" was the first bank to offer its customers an opportunity to use the Proxy Registry "Instant Links" established and maintained by Latvijas Banka, and other leading not only Latvian but also Estonian banks are also expected to follow suit. Thus, end users, i.e. households and businesses, will enjoy more comfort and opportunities not only in Latvia but also in the other two Baltic countries", this is how Harijs Ozols takes stock of the work done.

Meanwhile, Ģirts Jansons points out that the public opinion in Latvia concerning the need to have 1 and 2 euro cent coins in circulation has always been divided, and the time is ripe to launch a broader discussion on the issue, involving both consumers and merchants.

Several euro area countries (Finland, the Netherlands, Belgium and Ireland) have introduced regulations providing for rounding the total amount of purchases, thus decreasing the number of 1 cent and 2 cent coins in circulation. This does not mean that shops increase prices by rounding them to the closest multiple of five. The total amount of the purchase printed on the till receipt is rounded up or down. If the total amount ends in 1 or 2, 6 or 7, it is rounded down, whereas a sum ending in 3, 4, 8 or 9 is rounded up.

"There are grounds for wondering why some countries have decided not to use the lowest denomination coins. First, these countries want to simplify people's lives by minimising the number and weight of coins they carry in their wallets. Second, a large number of coins mean an additional burden for households and coin processing costs for businesses (eventually for consumers). The lowest denomination coins increase the work burden of shop assistants, generate additional logistics costs for shops and cash handlers as well as additional coin minting costs for central banks," Ģirts Jansons comments on the situation.

It is the cash users, i.e. households, merchants and banks, that have to provide their assessment on the denomination of coins fitting best for the specificities of Latvia to make cash circulation faster, user-friendlier, safer and eventually also cheaper.