Introduction
In the midst of the tide of consumers migrating to online channels of commerce, there has been a strong need to focus on reinventing the proximity payment options to meet consumers’ expectations for seamless checkout experiences. Besides the unwelcome arrival of Covid-19 has further pushed the requirement of cashless, and more importantly contactless in-person transactions.
Some emerging use cases have now turned mainstream, including click-&-collect, home delivery & services, payment in-aisle or in mobility. In addition to large retailers, SMEs, micro-entrepreneurs, etc. are also adopting more customer-friendly and electronic solutions, with the support of innovative new technologies. This has led to a relentless rise in the adoption of mobile POS (mPOS) to complement as well as replace the legacy terminals, as they efficiently serve the traditional transaction requirements as well as the new emerging ones. . And with the active engagement of governments, policy-makers and other influential parties of the payment ecosystem, the shift to cashless can only be expected to grow further with full steam.
Closing in on a Cashless Society
Some might argue that we were extremely far from the reality of a cashless society before the pandemic, but a steady movement away from notes and coins was already in-progress even before 2020. Additionally, would it even have been possible for consumers to quickly shift to cashless proximity payments if the infrastructure support wasn’t already in place?
The report by Capgemini shows that cashless transactions doubled over the span of 5 year between 2013 and 2018, and are likely to double again by 2022, with the highest increase in Asia. Another study by HSBC shows that more than half the transactions were already cashless in 2019, and that 74% of the total in-person transactions are estimated to be cashless by 2023. Currently, the Americas conduct the highest proportion of contactless payments, and in developing countries such as Brazil, newly banked citizens are moving straight towards innovative mobile payment solutions.
What forces are driving this evolution?
Firstly, the convergence of strong demands from the consumer’s side and an equal amount of enthusiasm from merchants, payment schemes and other stakeholders has given the much necessary boost to cashless payments in-store. The opportunity to offer a truly omni-channel experience and reduce checkout time has been a key driver for businesses to adopt POS technology, not to mention the elimination of cash operations and faster availability of funds.
Additionally, the rise of contactless payments has been a principal game changer. A study by Juniper reveals that contactless card shipments have surged in almost all the countries, with Germany and France taking the lead, with an estimated penetration of 97%. On the other hand, as of today, 80% of the global POS installed base supports contactless transactions and it’s expected to reach 92% by 2023.
The most prominent payment networks- Visa and MasterCard have already mandated all newly deployed fixed POS terminals to support EMV contactless transactions since 2018; from 2023, all the terminals (fixed and mobile) will be required to support NFC transactions, thus covering a wide range of payment use cases.
Another key factor influencing cashless payments is the innovation in mobile payments. Smartphones are nearly ubiquitous and almost indispensable in today’s society. And with the integration of NFC and QR technology, numerous mobile payment solutions have disrupted the payment industry over the past few years. According to a study by ReportLinker, around US$121.9 billion worth of proximity transactions are estimated to be done through mobile payments and the amount is projected to grow up to US$1.5 trillion by 2027 with a CAGR of 42.9%.
Lastly, new POS technologies and card acceptance packages are fuelling this revolution further by being more inclusive of micro, small and medium sized businesses. Adapting to electronic payments has enabled merchants to not only provide their consumers with a better check-out experience, but also gather data and gain insights into customer spending patterns.
The Impact of Covid-19
A survey conducted by Mastercard in 19 countries demonstrated that 79% of the people are now regularly using contactless payments. Another study by Ascent shows that $2 trillion worth of transactions are made using contactless technology across the world, and this value is likely to rise up to $6 trillion by 2023. Particularly in the context of this sanitary crisis, 82% of consumers regard contactless as a cleaner way to pay.
Not only consumers, but merchants too are driven by similar concerns to actively promote use of contactless payment methods, since they can protect their customers as well as their staff by discouraging cash-based or PIN-based transactions. Many of the large-scale merchants already had the required infrastructure in place, and under the effect of general effort to nudge customers onto a contactless path, smaller enterprises too invested in the required devices.
Additionally, governments, regulators and other stakeholders too are pushing for “touchless” payments. Many countries have increased the upper limits of contactless payments. For instance, in the UK the limit was increased from £30 to £45, and more recently up to £100, in France from €30 to €50, and in Germany from €25 to €50. Public health bodies, Centers for Disease Control and Prevention in the US have also become involved by advising businesses to use contactless technologies whenever possible.
Temporary Measures or New Normal?
But the crucial question to ask is whether or not this drift towards contactless is here to stay, or just a temporary reaction to the underlying epidemic situation. According to the Mastercard survey, 74% of the consumers intend to continue using contactless, and another report by RTi Research confirms the numbers: 30% of the consumers started using contactless after the pandemic began, and 70% will continue to do so even after it has eased.
In addition to consumers, governments working on financial inclusion initiatives, or looking to address black economy and tax evasion will also be keen to maintain the trend towards traceable, electronic modes of payments. Merchants too are expected to stay on the course, seeking the benefits beyond improved hygiene standards, such as faster checkouts, shorter queues, improved security and operational efficiency leading to a smoother consumer experience. Considering all these benefits, cashless transactions have become a common practice for every other person, and with new adaptations, it is safe to assume that it will continue to prevail.
