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The Future of Payments

Peter Wickes

Peter Wickes

General Manager Enterprise, EMEA, Worldpay

2020 has changed the payments industry forever. Cash is no longer king, and COVID-19 has accelerated a change that was expected to take several years.

Restrictions and guidelines put in place to deter the spread of COVID-19, along with the health and safety concerns associated with physical cash and touching surfaces such as payment terminals, have forced consumers to change their everyday behaviour and led to surge in digital and contactless payments.

The pandemic has broken the inertia associated with doing business mostly in the physical world, and even though the shift towards these new payment methods was already underway, this rapid rate of change has caused consumer and retailer behaviour to leapfrog years’ worth of change in the space of a few months.

As the pandemic continues so will the adoption of digital and contactless payments. With consumers now becoming more comfortable with these payment trends, we can expect to see continued innovation and acceleration in the payments industry throughout 2021.

Contactless goes Mainstream

Contactless payments have been around for over a decade and while the technology may have already been commonplace in countries such as the UK and Australia, the speed in which it has accelerated globally in 2020 is unparalleled. In Germany, where cash has always been king, more payments will be made through card than cash for the first time in 2020. This is according to global market research company Euromonitor International, who claim the use of cash has dropped in the country by 30%. Similarly, in the U.S. where most payments have up until now been authenticated by signatures, contactless payments are becoming increasingly popular for consumers.

The Generation Pay report from Worldpay from FIS found that there is an increasing appetite for contactless and digital wallets since the start of the pandemic. Globally 61 percent find it easier to pay using contactless, and this percentage rises amongst younger generations (Gen Z, Y and X).

Contactless limits could potentially be increased to drive further adoption, while consumers could also be given control over what they want their limits to be, but security concerns need to be addressed first, with 47 percent globally still concerned that contactless card payments are not as secure as other payment methods.

Mobile payments, including Apple Pay and Google Pay, currently have no contactless limits, but these alleviate consumers security concerns by using biometric authentication. These will have a bigger role to pay in the future as merchants begin to accept these more.

Innovating Issuers

Issuers have had to get creative this year with the rise in digital payments, and this will continue moving into 2021 as consumers search for the most frictionless payment experience, bank-to-bank payments look set to continue to rise and with that eCommerce checkouts need to adapt to suit consumers needs.

As consumers increasingly buy online, they are becoming less tolerant to bad checkout experiences. Apple Pay and other mobile payment experiences, which allow consumers to authenticate and pay with one click, are having the biggest impact on this. Consumers no longer want to fill out forms and type in card numbers when paying for goods or have the hassle of being redirected to payment pages. A clunky payment journey will see customers drop out during checkout, savvy merchants need to work with technology providers in order to streamline the payment journey and combat basket abandonment.

Authentication means Biometrics

As transactions have gone online, fraud has gone online too, and as consumers move to new payment channels the industry is focusing on ways of cross channel monitoring. This means businesses are able to protect their customers by looking at all account activity away from cards.

Businesses will be using new fraud technologies, including biometrics to stop fraudulent transactions. Biometrics are already being used on mobile devices to authenticate payments, removing the need for purchasers to remember a PIN or password, and new developments in biometrics suggest PIN numbers and passwords are set to become a thing of the past. Importantly, for those retailers who are selling to Europe, biometric authentication ticks the boxes for complying with SCA regulations that are coming in to force at the end of this year.

Using biometrics to authenticate payments and making that ubiquitous is what the industry is aiming for. The main way biometrics could be used is similar to Apple Pay, where consumers feel safe as their biometric fingerprint is never leaving their device. This follows the Fast Identity Online (FIDO) standard, which uses public key cryptography techniques to provide stronger authentication. This gives consumers confidence of logging into websites and paying, and login’s like this, using biometrics with Apple, Google and Facebook among others, meaning no form filling, are expected to continue to grow in 2021.

QR Codes: The Future of the Store

QR codes are not a new technology, but the pandemic has provided new use cases for them. ‘Track and trace’ mandates mean that consumers are now checking into shops and stores. This gives businesses valuable data on their customers, which they can use to build loyalty in the form of coupons and discounts. QR codes are accessible and low cost for businesses and there is going to be more experimentation with them into 2021, but trust will be paramount for consumers and businesses will need to work out how much information their customers are comfortable giving and how to reward this in order to drive loyalty.

Retailers will also become heavily invested in omnichannel. Consumers may continue to limit their time in store and the rise of click and collect looks set to continue. But for those who do shop in store, retailers should over-index in investing in their experience, making it more   become personalised and using technology to create a comfortable, convenient and safe environment service.

For example, concepts similar to the Amazon One will grow in popularity. This new biometric technology allows shoppers to pay at stores by placing their palm over a scanning device when they walk in the door or when they check out. Other businesses will be trialling software on phones which allows shoppers to choose items and walk out, with the payment coming immediately from their account when they leave the store. This Just Walk Out technology is similar to the Amazon Go concept.   

Driving Digital Currencies

Over the last year, the notion of central bank digital currencies (CBDC) and the role they could play in the financial services ecosystem has been widely discussed around the world, and there are now over 60 CBDC projects globally, including China’s digital yuan or Sweden’s e-krona to replace cash in the long term. CBDCs are essentially money in digital form and they would act as a complete replacement for notes and coins, providing better security, reducing fraud and lowering costs.

CBDCs provide opportunities for innovation as they enable programmable money. For example, this could be used to create initiatives such as giving key workers a discounted VAT rates. But with money being computer program code this means it can be upgraded, and it is unclear whether consumers want this, and there needs to be a marriage of trust and opportunity for technology to see mass acceptance.

Digital currency initiatives can act as a way to rebuild better, and if they can fit in with consumer’s lifestyles by seamlessly integrating with their everyday life, there will be more opportunities for CBDCs in 2021.

The Future is Digital

How we make and accept payments is changing for good. COVID-19 has sped up the evolution of the payments industry and new innovative technologies will continue to be produced and developed over the next year.

As we move into 2021 the future of payments looks set to be more personalized and tailored.  Business will have to connect with their customers to find out what they want and need to create a more valuable experience. And as the displacement of cash continues, digital and contactless payments will become the norm, paving the way towards a cashless society.

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