The world is on a journey towards a cashless future. MasterCard Advisors did a study on the growing proportion cashless (i.e. digital) payments in retail globally. This trend is generally welcome as cash is inconvenient to access for many and it costs societies a whopping 1.5% of the GDP. On the other hand, digital payments boost economic growth and promote economic inclusion.
Globally, we are only at the onset of the cashless journey, with 85% of retail transactions being done with cash. At the country level however, the picture is far from uniform. Countries like Canada, Netherlands, the UK, Belgium, Australia and France are nearly cashless with the share of non-cash payment being at least 85%. The US, Germany, Korea, Singapore, and Japan are reaching a tipping point with more than 60% of payments being cashless. At the same time, mobile is dominating the world (see the latest stats here). So what is the implication of digital money and mobile being so pervasive? A tidal wave of change for how we make payments.
The power is shifting away from traditional institutions such as banks and network issuers towards technology giants, start-ups, consumers, and merchants. A quick search on Angel List for “payments” reveals that 1,237 companies with 25,813 investors are competing at various layers of this space. Even SnapChat maybe getting in on the action! More competition is great for consumers, not only in terms of pricing but also quality and breadth of services.
One interesting arena of competition is in-store purchases. There are two main technologies competing to be the gold standard: Bluetooth Low Energy (BLE) and Near Field Communication (NFC).
Apple and PayPal both are major advocates of BLE with their Beacon technologies respectively. They both allow customers to pay for products in physical stores with their mobile phones, while enabling merchants to send push notifications such as special offers and discounts to customers who walk into the store or a specific section of the store. Customers can skip the checkout line by paying for the product on the spot using a smartphone without interacting with a store employee. Moreover, Beacon technology enables in-store navigation giving the customer turn-by-turn directions to find a particular product or department. There will only be more and more creative use cases for this technology going forward.
The other technology in play is NFC, which has seen less success than BLE. The main issue with NFC has been the lack of consensus over the control of the Secure Element, or the financial information of the customer. However, the Android team at Google has created the NFC HCE (Host Card Emulation), which takes away the issue of control over financial information. With champions like Google in its corner, along with the movement towards more and more NFC enabled point-of-sale (POS) terminals, NFC may have a bright future in retail payments.
These are very exciting times for payments due to innovation happening at so many different levels. It will be interesting to see how the competition unfolds between technology giants, start-ups and financial institutions. Fierce competition will mean that the value created from these technologies will be distributed in a more equitably interesting way than the past, with the consumers as the ultimate beneficiaries.
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