The COVID-19 pandemic significantly altered the way merchants do business.  Preventive confinement, health restrictions and fear of contagion forced businesses to look for other ways of operating through home-based services, online commerce and the acceptance of different electronic payment instruments and channels as alternatives to cash.

As evidenced by the findings of the payment survey conducted by Banco de la República at the end of 2020 and reported in a study by Carlos Arango, Rocío Betancourt, Manuela Restrepo and Germán Zuluaga, who are researchers at Banco de la República, 50% of the businesses surveyed have adopted some sort of electronic payment instrument or channel. Moreover, 26.1% of the adoption of these services was a consequence of the pandemic. Also, 51.4% of the businesses surveyed reported an increase in their electronic sales compared to cash sales during this period, with similar trends in all sectors (Graph 1).

Graph 1. Change in Electronic versus Cash Payments during the Pandemic, by Business Sector (Percentage)

Health, sports and beauty: they have increased 60.5%, remained the same 29.3% and decreased 10.2%. Technology: they have increased 55.5%, remained the same 30.1% and decreased 14.4%. Vehicles, auto parts and automotive technical service: they have increased 54.1%, remained the same 26.3% and decreased 19.5%. Appliances and home: they have increased 53.9%, remained the same 24.2% and decreased 21.8%. Food, beverages and groceries: have increased 52.5%, remained the same 35.5% and decreased 11.9%. Transport service and others: they have increased 49.8%, remained the same 33.4% and decreased 16.8%. Clothing and footwear: they have increased 46.6%, remained the same 28.8% and decreased 24.7%. Bars, restaurants and hotels: they have increased 41.1%, remained the same 38.5% and decreased 20.4%.

Source: Borradores de Economía, 1180, Banco de la República.

Less use of cash is also evident when the ratio of cash withdrawals (advances plus card withdrawals) to private consumption is calculated. In this case, the quarterly average went from 30.2% in the 2015-2019 period to 24.6% in the 2020-2021 pandemic period (Graph 2).

Graph 2. Cash Withdrawals and Advances as a Share of Private Consumption

First quarter 2015: 28.8%; second quarter 2015: 29:3%; third quarter 2015: 29.7%; fourth quarter 2015: 30.2%. First quarter 2016: 28.6%; second quarter 2016: 29.7%; third quarter 2016: 30.4%; fourth quarter 2016: 31.4%. First quarter 2017: 29.8%; second quarter 2017: 30.7%; third quarter 2017: 31.4%; fourth quarter 2017: 31.9%. First quarter 2018: 30.5%; second quarter 2018: 31.2%; third quarter 2018: 30.7%; fourth quarter 2018: 31.1%. First quarter 2019: 29.2%; second quarter 2019: 29.7%; third quarter 2019: 29.5%; fourth quarter 2019: 30.0%. First quarter 2020: 27.9%; second quarter 2020: 23.4%; third quarter 2020: 23.0%; fourth quarter 2020: 27.2%. First quarter 2021: 24.7%; second quarter 2021: 21.3%.

Source: Calculations based on figures from the Office of the Financial Superintendent of Colombia and from DANE.

The leap in the acceptance of electronic payments, however, revealed an important reality about the supply of these services. The digital needs created by the pandemic have been supplied to a large extent by electronic instruments and channels other than those associated with payment cards.

The survey shows 41.1% of the adoption of transfers through mobile applications 1 is attributable to the pandemic, as opposed to less than 22% in the case of cards (Graph 3).  Also, 60.1% of the electronic channels and instruments adopted during the pandemic are associated with electronic transfers (via mobile applications or bank websites) and not cards. These consequences are due partly to the fact that sales through cards imply the payment of commissions and withholding taxes (Retefuente and Reteica), which do not necessarily occur in the same way through alternative payment mechanisms.

Graph 3. Merchants that Adopted the Following Payment Channels Due to the Pandemic (Percentage).

Transfers through mobile application: 41.1%. Digital payment gateways: 38.8%. Payments using QR technology: 34.7%. Online payments through PSE: 33.0%. Direct bank transfers: 26.3%. Payments through remittance transfer companies: 25.0%. Payments with cards through mobile application: 22.0%. Cash deposit; 20.9%. Contactless payments on dataphones: 17.7%. Card payments via dataphone: 11.6%.

Note: Expanded sample. Merchants who adopted the channel report they did so as a result of the pandemic.
Source: Borradores de Economía 1180, Banco de la República.

The high costs of cards are a major barrier to their adoption. In fact, only one-third of the merchants surveyed consider card transactions to be less costly than cash transactions, while 67% consider sales through electronic transfers via mobile applications to be less costly than those made in cash (Graph 4). However, two-thirds of the merchants surveyed recognize that accepting them could increase their sales.

Graph 4. Views on the Features of Different Payment Instruments (Percentage)

Debit card with dataphone: less expensive than cash, 40.7%; increases total sales, 66.6%; less risky than cash, 61.9%; more efficient than cash, 56.4%. Credit cards with a dataphone: less expensive than cash, 33.7%; increases total sales, 65.2%; less risky than cash, 55.5%; more efficient than cash, 51.9%. Payments through mobile applications: less expensive than cash, 67.0%; increases total sales, 64.0%; less risky than cash, 63.8%; more efficient than cash, 55.7%. Check: less expensive than cash, 49.8%; increases total sales, 28.7%; less risky than cash, 40.4%; more efficient than cash, 15.1%.

Note: Expanded sample. Differences are statistically significant at 1.0%.
Source: Borradores de Economía 1180, Banco de la República.

In a complementary study, Carlos Arango, Rocio Betancourt and Manuela Restrepo find that debit and credit cards are 2.7 times more expensive than cash, in the case of Colombia, and their costs are relatively higher in the case of micro- merchants. This is due mainly to the fact that commissions account for more than two thirds of their processing costs. In addition, the authors show the fees currently charged by the industry are above the levels considered optimal for the welfare of end users. Therefore, the 2020 survey unsurprisingly reveals that more than 60% of merchants who accept these payment instruments use strategies such as cash discounts and minimum amounts or surcharges for card payments as an incentive to be paid in cash (Graph 5).

Graph 5: Merchants Using Strategies to Encourage Cash Payments, by Size (Percentage)

Some strategy: medium and large businesses, 37.6%; small businesses, 57.7%; micro-businesses, 60.6%. Discounts for cash payment: medium and large businesses, 26.1%; small businesses, 43.5%; micro-businesses, 53.2%. Minimum sale amount for the use of cards: medium and large businesses, 15.3%; small businesses, 28.3%; micro-businesses, 27.4%. Surcharge for payments with electronic means: medium and large businesses, 2.6%; small businesses, 10.7%; micro-businesses, 10.7%.

Note: Percentage calculated with respect to merchants who accept debit and credit cards.
Source: Borradores de Economía 1180, Banco de la República.

The proliferation of electronic payment options as an alternative to cards is a positive sign that technological advances and market incentives are favoring the entry of providers of payment services that are less costly than those offered by traditional schemes. However, the still limited acceptance of electronic payments and the lack of integration among the new providers of these services mean that Colombians continue to prefer payment in cash, which accounts for 78.5% of merchant sales (Graph 6). Therefore, it is appropriate to continue to monitor developments in the acceptance and use of electronic payments and consolidation of the reduction in the use of cash prompted by the pandemic.

Graph 6. Sales in Pesos and Number of Transactions by Payment Instrument (Percentage)

Cash: value of sales, 78.5%; number of transactions, 78.4%. Electronic transfers (mobile applications and online transfers): value of sales, 9.3%; number of transactions, 9.6%. Debit card with dataphone: value of sales, 6.1%; number of transactions, 6.3%. Credit card with dataphone: value of sales, 5.0%; number of transactions, 5.0%. Checks: value of sales, 0.7%; number of transactions, 0.7%. Others, such as bonds: value of sales, 0.2%; number of transactions, 0.2%.

Note: Expanded sample. Differences between sizes are significant at a<0.01.
Source: Serie Borradores de Economía 1180, Banco de la República.


1. The survey refers to transfers between accounts through mobile apps such as Daviplata, Nequi or Movii.