The future is cashless – this is what our Wirecard experts regularly report on this blog. But as we also find other perspectives exciting, we have asked various experts with different backgrounds for their insights, experiences and opinions about cashless as part of our “Cashless Think Tank” interview series (click here to read all parts published so far).
We started with Jan van der Holst, Director Payment at Adidas Group and payment expert, speaker and blogger Maik Klotz, and now we continue with Thomas Connelly, payment expert at the Emerging Payments Association, a member association of more than 130 payment companies with headquarters in London. Thomas is also co-author of EPA’s Project Futures Reports.
Thomas, from your perspective, what are the most important advantages of cashless payment?
To really understand the benefits of a cashless payment, you have to consider a holistic viewpoint.
For businesses, the digitization of payments opens up a wealth of data to work with. By turning this data into immediate, actionable insight, you can identify new revenue streams or markets, improve data security, and provide enhanced, tailored customer and marketing services, as well as develop new innovative products centered around the customer transactional data. Digital payment makes innovation and growth easier through its data – a factor which is possible with cash but limited in terms of available data and enormously resource-intensive.
For consumers, a cashless society removes logistical shackles. You don’t have to worry about not being able to pay due to a lack of cash. You don’t have to fret about finding a – working – ATM. You don’t have to worry about losing your wallet because your wallet is cloud-based and accessible on your phone or device. Being cashless can be freeing. The disadvantage of being cashless is … well, when you need cash!
But cashless payments can also open up accessibility and inclusivity. A traveler can now have free or low-cost transfers between currencies when outside their domestic market through digital payment options. A benefit recipient can now be helped by a digital account that provides ring-fencing of payments – i.e., their financial separation – to landlords, utilities and food retailers, rather than having to physically apportion their cash. A greater choice of digital payments linked to basic bank accounts means that lower-income groups can secure the same cheaper prices for goods and services – they don’t have to experience the ‘poverty premium’ of being cash only.
What are the most important trends that are helping cashless to become more prevalent worldwide?
Fundamentally, the integral trend that is enabling cashless to become de facto is the wide variety of payment choices available to a payer. Merchant adoption of new, convenient POS payment technologies have led to consumers having a great choice of payment methods. As more and more retailers – of all shapes and sizes – have shown an increasing acceptance of cards, contactless payments, and new payment applications, both online and in store, we have increasingly seen a year-on-year reduction in the use of cash by consumers here in the UK. The economic utility of digital payments – convenience, security, flexibility and integration – ultimately bring many users to choose digital payments over cash.
“Cash costs: Cash handling infrastructure is expensive, such as logistics centers, high-quality costly equipment, high levels of security to prevent theft” – payment expert Thomas Connelly from @EPAssoc #CashlessThinkTank #WirecardBlog
Added to choice is the fact that consumers are starting to understand the value proposition. When consumers see the use case and how it absolutely benefits them, they will embrace it. The success of cashless ticketing for London’s public transport, and indeed other cashless ticketing in other UK cities, were absolutely paramount to the adoption of contactless payments. Consumer education is vital to adopting new ways to pay. With an increasing focus on financial inclusion, and concerns about the reduction in access to cash, the payments industry – especially the large incumbent financial institutions – and governments globally are taking a concerted approach to educate the public on the benefits and utility of digital payments to ensure that everyone is financially included.
It’s also important to note that ‘cash costs’. Cash handling infrastructure is expensive, such as logistics centers, high-quality costly equipment, high levels of security for staff and external threats to prevent theft, and with significant fixed cost elements. So as the volumes of cash handling fall, the average cost per unit of handling cash will rise. It creates a rolling stone effect where embracing a cashless approach becomes necessary from an operational and cost perspective.
How do you think cashless payments will be made in 2030?
Simply put, consumers want a seamless payments experience, and a simple and quick customer journey. The reason why the ‘Uber Experience’ is so popular is that there isn’t a ‘payments experience’ – it’s embedded within the app’s core customer journey. As merchants wake up to the benefits of app-based commerce, we’ll see more well-targeted or compelling apps come to market with in-app payments widely deployed, where the point of payment is less explicit for the customer.
But friction in some transactions is both necessary and welcome, to ensure that buying things is not too easy for some people or for some types of transaction. Rules will be adopted that help to ensure there is the right amount of friction in every transaction to ensure that there are no-weak points for consumer protection. The challenge for the UK’s regulators is to ensure there is the right balance between specifying such rules through regulation and allowing the market to decide and police such rules through schemes, banks and other players. In essence, friction will be removed almost completely from most transactions and then added back in for some. We’re already seeing this as strong customer authentication – SCA – comes to effect in e-commerce transactions from September onwards.
Biometrics will also have an increased role in everyday payment services as a primary means of authenticating customers, acting as our first line of defense in retaining consumers’ trust in payments, becoming widespread within a 10-year horizon.