If I asked you to design a payments system from scratch today, it’s unlikely you would suggest pieces of paper and bits of metal as the medium of exchange. Against the backdrop of our increasingly digital, networked lives, cash seems, at best, a little primitive.
Cash can be costly to manufacture and to transport. Handling it is often expensive and time consuming. There are security risks – it can be easily lost, stolen or destroyed and it’s very difficult to trace.
Disruptive innovation has digitised physical media across a whole range of industries. Email has significantly reduced the amount of postal mail sent. Downloads have caused sales of CDs and DVDs to plummet. Cloud computing is eroding the need for local, physical storage of data.
Cash seems like a prime candidate for digitisation, and while there have been significant inroads into cash usage, there’s still a lot of it out there.
Disrupting cash payments
One reason cash has persisted for so long is that there hasn’t been a viable alternative for low value payments. Today, we have contactless payments, and it’s in these that consumers have finally been able to find an alternative to cash. In the twelve months to February 2014, €3.7bn has been spent on contactless cards; that’s almost 400m contactless purchases.
Since contactless became available on London’s famous red buses there have been more than 13 million journeys made and paid for using Visa contactless cards. Later this year Transport for London will roll out contactless acceptance across its entire network – including the London Underground. Being able to use the same card to buy your morning coffee and get on the tube offers an enormous advantages over cash – no need to carry money around, no need to wait for change and no need to queue up to purchase a ticket when your Oyster card runs out on a Monday morning!
Crucially, contactless cards can do more – and they do so more securely and faster – than cash can, rather than simply replicating cash’s limited functionality, so there is a real incentive for consumers to choose to use them over cash.
Growth of contactless cards is not purely a UK phenomenon– far from it in fact. For instance, Slovakians already use their Visa cards to make more than one million contactless transactions every month – a really significant number in a country of six million people. In Polandclose to 12 million Visa contactless payments are being recorded every month, making it Visa’s leading market in terms of volume. Spain and the Czech Republic are also reporting over 1 million Visa contactless transactions a month.
Contactless has disrupted the status quo through which cash was the de facto way to pay for low value purchases. Yet despite the fact that in €1 in every €6.50 spent in Europe is now on Visa cards, there is still a sizeable amount of cash being used.
One of the reasons that some consumers seem wedded to cash is the perception of control it gives them. They can see how much they’re spending on the move as the amount of cash they have on them depletes before their eyes. This is where mobile payments can meet a real need – combining the speed, security and convenience of contactless card payments with the increased interactivity and enhanced experience of a mobile device. Smartphones have become so embedded in daily life that many consumers are rarely without them. Adding payments into the range of functions these devices can perform enhances both the payment and overall mobile experience, moving us one step closer to the ‘one device that does everything’ ideal. Link it with mobile banking apps and you get an easy, efficient way of managing your money – no more heavy cash in your pocket and no more wondering where that last £20 note went – it’s all there, on your device.
Adding value to payments
The good news is that the infrastructure, the specifications and standards and the cross-industry support is in place for mobile contactless payments. The 1.4 million terminals that accept contactless payments across Europe also accept mobile contactless payments – there’s no need for those retailers who have made the decision to go contactless to make any further hardware investment.
The majority of major handset manufacturers now include NFC as a standard feature. There are now more than sixty mobile payment implementations in Europe, each one representing a financial institution and MNO working together to deliver mobile contactless payments. InSlovakia – a hub of payment innovation – Tatra banka, O2 and Visa launched a service whereby customers of Tatra banka with an NFC-enabled smartphone can simply walk into a local O2 branch, have their SIM card replaced, and walk out again able to make mobile contactless payments at any of the 12,000 contactless terminals in retailers across Slovakia.
Will we see a cashless future?
So does the rise of contactless and mobile payments mean that we are hurtling towards a cash-less Europe within the next ten years?
For me, the answer is no– there are always going to be consumers who have a preference for cash over new technologies and no-one is going to force behavioural change on them. However, all the signs point to a ‘less-cash’ Europe, with contactless and mobile contactless payments increasingly helping to deliver that vision over the coming decade.