By Sri Shivananda, Executive Vice President and CTO, PayPal
The future of digital payments is a journey of transformation. If we think about some of the biggest transformations in the last 100 years, they’ve largely been driven by something being replaced, removed, or disappearing altogether. Transformation is often grounded in the concept of removing something – it is the absence of something.
2020 marked the beginning of a new transformation with the huge global disruption that the COVID-19 pandemic and the confinement of people generated. We experienced a significant change in the lives of people worldwide that have ignited many more transformations. In this case, the need for reduction of physical contact has impacted the way we live and interact with others, and the way companies and consumers relate to each other, and has made us all more digital.
Let me give you an example from our lives way before COVID-19. When they were first introduced, cordless phones and wireless phones were named in part by including what was missing – cords and wires. Now we call them phones, or even just “mobile,” because their utility goes far beyond making calls. We use mobiles to take photos, keep up with family & friends, organize life, learn, entertain, shop and make payments. They are becoming the personal assistant for the masses and have been a primary driver of the digitization of life, commerce and payments.
Looking ahead as commerce and payments evolve, mobile devices, big data, hyper-personalization, ambient experiences and other advances are changing everything about how we live, how we communicate, how we work and how we pay.
Here’s what we think is in store for commerce and payments in the next years.
In 1950, Diners Club issued its first charge card, followed by American Express in 1958, starting the evolution into what we use as credit cards today. The convenience of not carrying cash or a checkbook has resulted in a card for nearly every way you can pay: credit, debit, loyalty program freebies, points, miles and coupons.
But the move to cards has introduced a hot topic – the concept of a cashless society.
Non-cash transactions are growing at the fastest pace ever. 94% of consumers in the UAE will continue to use digital payment as much as, or more than, in 2021. Also, more than half of UAE consumers (52% vs 41% globally) plan to go cashless by 2024, with nearly all (99%) consumers seeing the benefits of a cashless society.
Over 60% of payments in developed markets are now digital, and Sweden is expected to become the world’s first cashless society by 2023. The move to cashless has been embraced by many, but in some countries and cities, laws are being enacted to require companies to still accept cash. Cashless is viewed by these lawmakers as exclusionary to people who can’t afford a bank account. But the COVID-19 pandemic has accelerated this process. According to a study by the University of Oxford, money is a transmission route for bacteria, up to 26,000 per banknote. In many areas, the fear that banknotes or coins are a vehicle for the transmission of infection has caused some establishments or services to prohibit it. Many US restaurants have gone cashless and are using QR codes for menus. . In Spain, supermarkets recommend paying by card and, in addition, some cities have suspended cash payment on buses.
If that’s the case, how do we foster the progression of digital payments in a manner that makes all stakeholders comfortable? I suggest we look at commerce for the answers.
The early days of e-commerce and payments were fraught with challenges. Connectivity was limited, payments didn’t always work, logistics took too long, and fraud was hard to detect and deter. Consumers couldn’t fully trust that people on the other side of the computer were actually going to deliver the products and services they offered. There were questions around whether online commerce was reliable, competent, or honest – in other words, whether it was trustworthy.
We’ve already seen a massive shift in how and where commerce is conducted; before 1999, you went to the shop, and now the shop comes to you – no matter where you are. The years in between saw the steep rise in online and mobile commerce, and the creation of new offerings like direct to consumer subscription services and conversational commerce via social media, chatbots and voice technology. The payments industry innovated alongside these changes, shifting to allow users to pay for goods and services at every turn, because consumers are mobile and on the go. Digital payments disrupted industries, created entirely new economies and transformed the way we work and live.
Think about how the internet has enabled small businesses to sell to a global customer base and enable access to endless aisles of merchandise to consumers across the globe, in a vast number of currencies. That’s been driven by one thing – trust. Trust that you will pay and get your merchandise if you are a buyer and trust you will be paid for your merchandise if you are a seller. But trust has to be earned, and to do that, customers need to feel safe.
At the heart of a trusted, frictionless payments experience is the secure and proper use of data. In 2021, 66% of UAE consumers tried a new payment method they would not have tried under normal circumstances during the pandemic, and 97% will consider using at least one emerging payment method, such as cryptocurrencies, biometrics, contactless or QR code, in the next year. As a result, customers want to be informed how their personal data is collected, stored, and shared in the entire commerce journey. In order to harness data and use it responsibly at its full potential, however, a lot of boxes have to be checked: regulatory compliance, privacy, and security. Customer data should be protected by strong cybersecurity measures, supported by evolving fraud and risk features and handled in a way that meets regulatory requirements around the globe. Building, maintaining and updating the proper controls for all of these areas are table stakes, yet also serves as competitive advantage in an increasingly complex payments landscape.
With any major transformation in the commerce industry, before it can become reality it must first be embraced by the entire ecosystem: consumers, merchants, partners and regulators. This is true of cryptocurrency and virtual currency, and the underlying technology of blockchain. All have uniquely different potential in the commerce and payments industries.
The digitization of currency is only a matter of if, not when. The next decade will see currency become more digitized, and will likely experience increased support from fintechs, governments, and regulators. But most importantly, in order for digital currencies to adopted by consumers, consumers must feel that it’s a safe, secure and convenient method of becoming involved in the financial ecosystem.
If we believe now that the biggest advancements in payments is going to happen through the removal of things, payments are up for an act of disappearance – with ambient payments. A world in which shopping intent and paying are no longer two explicit actions.
In the next phase of commerce, the lines will be blurred between consumption, the experiences of everyday life, and paying for those experiences. Merchants will partner with payment platforms to make commerce as seamless as possible.
