Is contactless the new king of payments?

Lina Andolf-Orup, Fingerprints

Cash has been ruling the payments economy for more than two thousand years. Even though money still makes the world go around, as Liza Minnelli sings in the famous film Cabaret from the early seventies, and probably more so than ever, notes and coins have finally come to a halt. At least in some parts of the world.

In my home country, Sweden, and in our Nordic neighbours Denmark, Norway and Finland, we see the same development. Cash as payment method is fading away. I made a test before preparing this article and asked the owner of the coffee shop that I visit every morning on my way to the office how often his clients pay their latte or sandwich with cash:

“Almost never, less than one out of ten”, he said. “Cash is really decreasing.”

In our corner of Europe, we have rapidly moved into the cashless society by paying with debit and credit cards – first, we had a strange machine thing that drew a copy of the slip, then we used a pin code and since a couple of years, we have moved to a chip solution.

We are now taking the next big step by using smartphones and apps as payment methods. In Denmark, for example, a system called MobilePay which is an application for bank card payments using smartphones, is used by more than 3.6 million Danes, which represent an impressing two-thirds of the country’s entire population.

In the Nordics, it’s clear that cash is no longer king. If you instead turn to some of the world’s largest markets – US, UK, China and India – it might be not that obvious since cash in these countries on average still is used by more than one quarter of the population for weekly purchases, according to Fingerprint’s research (in collaboration with Kantar TNS). Actually, the usage of cash is more frequent in the UK (31 percent) and US (27 percent) than in their Asian counterparts.

When we asked 4,000 online consumers in the four countries above about their payment methods. We found similarities around cash usage, but otherwise there are some rather big differences between countries in the way consumers make their payments.

For example, in the US bank card dominates payments (almost half of all payments are made via card), but in China the corresponding figure is merely 23 percent due to the cumbersome process to set up bank payments.

On the other hand, in China mobile payments account for 37 percent of transactions, compared to the average of 22 percent, driven by the huge popularity of digital wallet giants Alipay and WeChat Pay.

In India, the infrastructure is lacking, but the country is moving towards digital payments and new terminals are being pushed out which most certainly will fuel contactless card and mobile payments growth.

The UK, the fourth of our researched markets, is the most advanced contactless payment country. Here consumers really prefer and are used to contactless cards. Contactless payments have been around in the UK since 2007 and are a great success. In June 2017 more than one-third of all card transactions were contactless, despite a cap of £30 meaning this method can still only be used for lower purchases. Though all three digital wallet giants are represented in the UK – Apple Pay, Android Pay and Samsung Pay – mobile payments uptake has until this point been slow.

Of all the weekly purchases, today only eight percent are made by contactless cards, but consumers in these four countries believe this share has risen by 50 percent in three years. In the US, the typical bank card market, there is a huge gap between what consumer want – contactless cards and mobile payments – and what they can pay with due to lacking infrastructure. In the US, consumers expect to use contactless cards 150 percent more in three years time.

Consumers also expect mobile payments in the four countries to increase its share by 13 percent in three years. Paying with a mobile phone is considered convenient, yet currenty 38 percent of consumers often or sometimes experience problems such as no battery or no connection.

Security problems are often related to mobile payments. More than 20 percent of the consumers surveyed have actually experienced payment fraud. In the US and the UK, around 40 percent are very or extremely concerned about payment fraud, while the figures for China and India are even higher (52 and 77 percent respectively).

Security is also an issue also for contactless payment cards. 38 percent see security as a key barrier to adopting contactless payment cards. In the UK where cards are more widely used and accepted this figure is even higher, a striking 55 percent. Other key barriers are: not enough vendors support (21 percent), low understanding of how it works (15 percent) and the payment cap (12 percent).

The awareness of contactless payment cards among credit/debit card users is high (87 percent) but until now only eight percent use contactless cards on a weekly basis. 30 percent use it now and then, while 46 percent have such a card.

Contactless payment cards have a high awareness among consumers, but barriers need to be removed if this payment method wants to increase usage and market penetration. Here biometrics can help, as it is the only way to offer convenient security and make contactless payments work for real in everyday shopping.

Consumers agree when asked they immediately see a fingerprint in a payment card as the next logical step. 50 percent would even pay extra on top of their yearly fee to have this in their future bank cards. Consumers’ use of biometrics in smartphones are paving the way for this, people are now used to and trust biometrics and see the benefits it brings.

The research firm ABI believes that the next generation payment cards is the natural evolutionary step to help safeguard the payment card through the integration of biometrics.

We are ready for this next step.

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