The payments industry is at a crucial crossroads, transforming to focus on globalization and technological innovation. It's up to leadership teams to understand the trends and ensure their business is ready for tomorrow.
Frictionless payments make buying easier for cardholders and selling easier for merchants. But there's much more to the story than that. 소액 현금화
The decline of cash
The COVID-19 pandemic super-charged a trend toward fewer cash transactions that was already underway. While it is true that some consumers continue to prefer to pay with cash, the share of those who do has dropped significantly since 2016. In 2021 only 19% of respondents cited cash as their first preference payment method for in-person payments, compared to 27% in 2019 and 27% in 2016.
In fact, the decline in cash use was most apparent for small value payments. This is partly due to the rise in eWallet adoption, which has led to a drop in payments made by hand (for example, through person-to-person (P2P) mobile payment apps). It is also likely because many smaller businesses have moved away from accepting cash altogether. This is particularly the case in countries where access to electronic banking services has increased significantly and there are a wide variety of digital payment options available.
Interestingly, the CPS asks respondents to indicate how often they need to visit cash access points such as ATMs and post office counters, so it is possible that some of this decline in cash demand is also due to a shift in the availability of alternative means of getting money. However, this is hard to determine from the survey data, because only a very small percentage of people say that they visit such locations on a regular basis.
While some segments of the population remain reliant on cash, including lower income groups, the evidence suggests that this group is declining fastest of all. In the US, for example, three-in-ten Americans whose household income falls below $30,000 a year say they use cash for all or nearly all purchases in a typical week, compared to only one-in-ten of those with higher household incomes.
This may reflect the importance of the tangible nature of cash to some consumers who need it as a way to budget and manage their finances. Indeed, the Bank has previously reported that one in five people who do not regularly use cash expect to start doing so if costs rise and their financial situation worsens.
Social payments
Social payments are digital transactions between friends or businesses. These services leverage the existing platforms of social media sites or mobile phone apps to facilitate exchanges quickly, cheaply, and securely. Users simply link their accounts through the payment service, and use the app to send money or make a purchase. In addition, many social payments use encryption protocols to ensure security and privacy. Venmo and Apple Pay are examples of this kind of payment service.
A growing number of developing countries have digitized their social assistance payments and are moving away from cash distribution. These efforts are facilitated by mobile network operators (telcos) who provide their customers with access to bank accounts, mobile wallets, and other digital financial services. The success of M-PESA in Kenya and Orange Money in Côte d’Ivoire have led to the development of similar telco-based mobile wallets and banking services in other markets, including India and Romania.
The COVID-19 crisis has prompted donors to support inefficient workarounds such as reverting to physical distribution of cash, but the long-term objective should be to move to digital payments systems for all social assistance programs. This would reduce the cost and time of cash distribution, improve security and accountability, and help recipients better manage their finances in times of economic stress or emergencies.
To encourage more of these efficiencies, the design of a new social assistance payments system must take into account how it will be used and the characteristics of the population that it serves. Women, for example, are more likely to lack access to identification, financial accounts, and mobile phones needed to receive digital payments, which is why gender-sensitive design choices are key.
Another challenge is to reduce crowds at CICO access points, where the risk of transmission may be higher (World Bank and CGAP 2020). To do this, senders must improve communication with recipients and increase the reliability and efficiency of the cash-out or voucher acceptance process. This can be done through a variety of channels, methods, and local languages, as well as by providing more information on eligibility requirements.
Big Tech
Big Tech’s move into financial services has far-reaching implications, extending well beyond the realm of traditional banking. It has the potential to challenge public policy in a way that is not easily addressed by existing regulatory frameworks, which typically focus on specific market segments and are designed for regulated entities, not BigTechs (Graph III.2).
Big techs are not normally subject to comprehensive group regulation and oversight that would be applied to banks because their activities straddle multiple regulatory perimeters, encompassing the areas of market conduct, consumer protection and anti-money laundering/countering the financing of terrorism (AML/CFT). Instead they face fragmented regulations, in the form of activity-based rules that apply to specific products and business lines. This fragmentation, and the fact that they often operate at a global scale, makes it difficult to coordinate oversight and enforcement.
Building on their e-commerce platforms, some big techs have ventured into lending to consumers and SMEs. They have a significant presence in the credit market for small loans to households, with total fintech lending growing rapidly, especially in countries where other non-bank credit is limited, such as Argentina and Korea. They also have sizeable money market funds businesses, which are used to fund their lending operations by providing a source of low-margin funding.
In addition, they have a huge advantage in terms of customer acquisition and retention, as their digital presence has already established an entrenched position in the hearts and minds of their millions of users. These customer relationships can help Big Techs offer better pricing to consumers, which in turn creates strong network externalities and keeps consumers locked into their ecosystem of products and services.
This has made many players in the payments industry nervous about the GAFA quartet crashing their party, and the impact it will have on competition, inclusion and regulation. The emergence of Big Techs into the mainstream of the financial services ecosystem is a major challenge that should be addressed by a comprehensive approach that combines elements of financial regulation, competition policy and data privacy regulation. If left unaddressed, these developments could lead to monopoly power in the payment space, which may have long-term stability implications.
Tap on Phone
There’s a whole new way for small merchants to accept payments that doesn’t require any additional hardware. Known as tap on phone, the solution turns an Android or iOS smartphone into a contactless payment terminal. The phones use near-field communication (NFC) to wirelessly read contactless cards and mobile wallets in close proximity. This enables the transaction to be completed without any physical contact, making it ideal for businesses that offer curbside pickup or deliveries.
Merchants can simply download a tap on phone app from their chosen payment provider, and the apps themselves act much like a card reader. The phone then becomes the Point of Sale (POS) for the transaction, and it can also support other features such as loyalty programs. The technology can even be used as a digital register or cash register, and it’s perfect for small merchants that want to reduce their carbon footprint.
It also makes sense for SMBs and micro-merchants to use tap on phone, as they don’t have the resources to invest in feature-rich contactless terminals. For these merchants, tap on phone offers a cost-effective way to compete with larger retailers and attract new customers.
In addition, many SMBs and micro-merchants have mobile sales employees who need a convenient and secure method of accepting payments while out in the field, such as for events, street vending, or delivery services. They may not have the time to learn how to use a complex contactless reader or carry around expensive equipment when they’re on the move.
With tap on phone, employees can simply hand their customers a smartphone and allow them to use it as a credit or debit card reader. This saves time and provides a better experience for customers. It’s a great alternative to paying with cash or using a paper receipt, and it can help keep the business safe from scams and fraud. Moreover, it’s easy to set up and can be done right from the employee’s phone.