Emerging and innovative technologies are shaking up the payments industry. By the end of this decade we can expect the cheque to have disappeared and for cash and plastic cards to have reduced in volume. Instead, electronic or mobile payments will have taken the lead, meaning coins and notes will become less important for several types of transactions. But what does this mean for the value chain?
The payments industry is a highly regulated market and demands strict adherence to rules and regulations. With the death of cash, banks, card merchants and traditional payments players will face major challenges to their existing models and infrastructures. So as not to be left behind, most of the existing organisations are already preparing themselves for the wind of change and disruption by investing in innovative technologies, and creating knowledge processes to serve the next generation of customers.
One new model making major inroads in the US (and with clones fast appearing in the UK and elsewhere) is Square. Using a smartphone (Android or IOS), card payments can be instantly accepted through Square as it provides simple user authentication by face and name recognition and an app to facilitate this. It poses a significant competitive challenge to credit card companies for certain forms of retail transactions and as more organisations embrace this technology, additional types of transactions will surely emerge. The ability to accept cash or card payments is currently a time-consuming activity. Square and these types of technologies are set to give the current players a real run for their money. The question is, how can they stay one step ahead?
Allowing users to make payments from their smartphones ensures that the entire process is sped up in several ways. When accepting traditional payments (whether by cash, card, or cheque), retailers get bogged down in cash management or sending out invoices, where they wait up to thirty days for the cheques to come in, and are often forced to chase up any slow payers. In the current economic climate, there is a tendency to dawdle over settling payments so any company using a system that makes the payment process more efficient will inevitably have the edge over businesses with a more dated system.
Giving customers the option to pay on the spot using a mobile device and app like Square for specific cases like paying for lunch saves all parties time and effort. It becomes so simple and efficient that one wonders why one ever dealt with cash or card; rather like use of Oyster cards for train journeys.
Another option is the 'mobile wallet', whereby, using NFC technology, your mobile can replace cash. While the mobile wallet concept has been a hot topic for the past decade, it is now truly starting to manifest itself as a reality. The big players in the technology space are looking to get in on the action with Apple, Amazon, Paypal and Google having outlined their intentions to make waves in the payments market. O2, Vodafone and EE have also announced their plans to release a digital wallet.
With so many players racing to develop an offering that meets the demand for mobile payments, there is no doubt that cash is on its way out - but this will be a long process. The payments industry is set to experience a great deal of disruptive changes.
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