Long before we ever heard of Covid-19, a tectonic shift away from cash was already underway in the vast majority of advanced economies. This mass adoption of contactless, digital payments was primarily driven by convenience, speed and security concerns and further motivated by new technologies and increasingly reliable systems.
Cards, mobile payments, digital wallets have been steadily getting an ever-expanding piece of the global transaction pie for years. This trend has now been supercharged and massively accelerated by the pandemic. In this “new normal” of social distancing and stricter hygiene protocols, contactless payments have emerged as a no-brainer solution for consumers and retailers to protect themselves, triggering a new adoption wave, even among people that used to rely heavily on cash. A new frontier emerges for businesses and consumers. But how will the commercial world adjust to this unexpected turn of events?
On a global scale, the Covid crisis has hit brick-and-mortar retailers hard, but many managed to find silver linings and secure a competitive advantage through adaptation and innovation. According to a recent study by American Express, 71% of Small and Medium-sized Businesses (SMBs) added or improved their digital capabilities in response to the pandemic. Nearly 60% now accept contactless cards, up from 40% in 2019, while the overall use of contactless payments in the US has risen 150% since March. Undoubtedly, the demand for contactless services is on the rise by external factors, as supply rushes to respond, and the equilibrium is still in flux.
The old adage “the customer is always right” seems to be particularly relevant now, as most of them are very clear about their priorities amid this public health emergency. In a survey by Visa, 48% of all respondents said they would not shop at a store that does not offer a contactless payment option, a figure that rises to 56% among Millennials, while 63% of them would switch to a new business that installed it.
The integration process of contactless payments is different and culture-dependent worldwide in terms of cash resilience. In Europe, during the pre-Covid-19 era, cash represented roughly 44% of in-store purchases, and not long after the outbreak, this number dropped by almost 10%. This shift is particularly striking in historically cash-reliant countries like Greece. A recent ECB survey suggests that around half of Greeks get paid in cash, simultaneously with the broader, institutional digitalization wave that was triggered by the pandemic, contactless payments also got a significant boost. According to a Visa report, they’re already up 25% this year.
But what will happen as economies convalesce and emerge from national lockdowns?
This surge in demand for contactless payments is poised to outlive the virus, with 74% of those asked in a Mastercard poll saying they will continue to use these options even after the pandemic is over. This result strongly suggests that the experience curve seems to have prevailed over the learning curve.
Many good reasons support that outlook. For one thing, the transaction speed and the convenience of contactless payments technologies are far superior to the alternatives. Customers can complete their transaction in 10-15 seconds and be out the door, while even this time window keeps shrinking with new real-time payments and instant settlement systems. This improvement is also significant for retailers, as it improves overall turnover and cuts down on queuing time and dedicated staff requirements. Another major benefit is the ease of use. “Tap-and-go” payments not only present a more hygienic option, as they eliminate the need to touch a POS keypad, but they also significantly reduce the hassle of PIN entry and all the frustrating mistakes and time-wasting glitches that most of us are all-too-familiar with. The process is further supported by the pandemic-driven decisions of regulators and financial institutions in many Western European countries, Greece included, to raise the limit for contactless card payments without PIN verification.
What’s even more important is that these upgrades in speed and convenience do not come at the expense of security. To the contrary, the security features and the direct control that these payment options provide are a key reason that persuades many people to adopt them in the first place. All transaction information is encrypted, with a unique one-time “token” being generated for each payment that doesn’t contain any details of the actual card or account holder, making fraud and identity theft infinitely more challenging. There are also additional security steps available to users, allowing them to verify higher-value transactions with a password, their fingerprint or with facial recognition. And if the card itself or lost or stolen, one can instantly and directly freeze it through the corresponding app on their phone.
Without a doubt, numerous digital payment solutions are competing to win over the trust of consumers and the corresponding market share.
There’s no shortage of innovative concepts and new technologies to facilitate this fast shift towards contactless payments. Amazon that already accounts for 40% of all e-commerce sales in the US is steadily growing its share of the payments services sector. Currently, most of that revenue stems from online transactions, but it’s been making remarkable inroads in the brick-and-mortar retail space too. In September, the company launched “Amazon One”, a new palm-scanning device, that allows shoppers to pay by merely waiving their hand over it. They just need to link a card to their unique palm print and thanks to the biometric technology, they can “shop, wave and go”.
Perhaps it won’t be too long before we go from cashless, to contactless and eventually to cardless too, and this appears to fit into a greater narrative about where payments are heading. We can already see dramatic reductions in transaction times and costs that could eventually approach zero. At the same time, the payment experience itself keeps getting ever more seamlessly integrated into the shopping experience. As Accenture’s Alan McIntyre concisely put it, the future lies in “IIF” payments: Instant, Invisible and Free. Such a proposition certainly seems to be supported by the ongoing trends, the nascent technology applications and, more importantly, the consumers themselves.