When financial technology becomes fashionable

Last September marked the 10-year anniversary of the introduction of contactless technology in the UK. Since then, more than £60 billion has been spent through contactless cards

The popularity of contactless payments is rising as the figures show. Their usage is projected to rise by a further 317% by 2021, according to data from Barclaycard. If we also consider the fact that many surveys indicate that 55% of UK consumers will not be using cash within two years, and that the rest of the European countries, US & Canada are closely following this trend, it is clear that the “tap & go” tech has very much settled in. Juniper Research sees this growth very similarly, estimating the global value of contactless to be well over a trillion dollars by the end of next year.

The pointers don’t stop here. The demand for contactless is overtaking the one for chip & pin for many urbanites. By the beginning of the next year, WorldPay will allow many pop-up retailers, such as food stalls, to use their own phone as a contactless terminal, erasing the need for a chip & pin terminal completely. Predictions and trends all agree: the rise of contactless has been one of the main factors encouraging people to stop using cash. With only one in six Britons carrying cash, and 34% visiting an ATM once a month, the 50th anniversary of the ATM could also see the beginning of its decline. A controversial view, no doubt, but one that is backed up by a general trend in how cash is used in the UK.

For us here at IBS, it is hard to believe that the opposite view holds just as much water. Granted, it is true that cash is becoming alien for many Brits, but it is still widely used, with an ING survey earlier this year revealing that around three-quarters of Europeans would never go completely cashless. The tension between the contactless evangelists and sceptics is palpable, but as Daniel Komitzer, CPO at Paysafe, told IBS Journal, it may be a generational thing.

Time and place

“Look at companies that completely revolutionised other industries. Ten years ago you wouldn’t even think about getting in a stranger’s car, and now Uber has made that commonplace. Similarly, AirBnB has had a similar effect,” Komitzer says. New “Tap and go” technology is more popular than ever before

Ideas, when accompanied by the right technology, “not only change industries, but people’s attitudes and the way they think”. He continues: “The same thing will happen with cash. It will take time – and cash is still very prevalent – but I believe we will see cash slowly die out.”

It is true that “people are becoming more and more technologically savvy, and demand more convenience”, as Suresh Vaghjiani, managing director of GPS, puts it. “We like to think that the transaction is something that you don’t even think about, and it’s seamless, is the best experience,” he states. However, he finds it remarkable that for many people, new fintechs are “taking it too far”. According to Vaghjiani, most consumers prefer a slight level of friction to confirm their own desire to go through with the purchase and to double check that all details are in order.

Komitzer agrees: “We use tech to recreate the personalisation that we get in old-school face-to-face payment interactions. It is also a matter of security. Identity fraud is becoming an increasing issue, and organised crime is on the rise, the right balance is somewhere in the middle.” While intuitive interface is the way to go, the one- click, or one-tap, payments are still a little too intimidating for many. At least for now. He believes that, in time, frictionless will prevail and that security  mechanisms will be able to keep up.

Similarly, Komitzer also believes there is a geographic factor in action. Technology and security trends differ from region to region. For example, 3-D Secure authentication adds an extra layer of security, which many Westerners may find a nuisance. For Russian consumers, however, it is considered paramount for them to trust the bank’s security. It is true, though, that the progressive disappearance of cash is noticeable throughout the world, with many benefits for those in developed and underdeveloped countries alike.

Worn out

Closely following the trend of contactless are wearables, which thread through the line between utility and fanfare. The Apple Watch – undoubtedly the most popular of all wearable devices –has received divided attention. But beyond Apple’s device there hasbeen a series of wearable alternatives that push the limits of payment innovation.

In the Netherlands, for example, homeless people have been given a jacket that allows them to receive €1 payments from contactless cards. Just under a year ago, Card Cutters launched a “swish & pay” scarf, which allows consumers to pay with a contactless chip placed at its end. Lastly, Kerv’s wearable ring, powered by GPS payment services, has enjoyed very positive feedback. Here at IBS Journal, we see success in its ability to allow owners to impress their friends at Tesco, but we find it hard to believe that a ring that doesn’t look like jewellery and that has a barely noticeable convenience factor, will take off.

This seems to be the issue with wearable devices – there’s little improvement when compared with mobile or contactless card payments. Not only that, but it seems that being forced to wear the same scarf every day may not hold great appeal for consumers. Vaghjiani believes this very issue is holding back at mobile. For many, bringing out the phone to Apple Pay or Android Pay is no more convenient than grabbing their contactless card.

Payments are like onions

Komitzer believes that the wide range of available payment methods and channels is nothing but a good thing. “Payment innovation is all about adding value to transactions for both the merchant and the consumer – and most of the times this value comes in the form of convenience. However, security and cost- effectiveness are also priorities in the pipeline, even though they may clash with convenience at times. Here in Canada, the last thing I want to do is take my gloves off to take money out when it’s minus 30 degrees. I’m more likely to gravitate towards a provider if it keeps my hands warm.”

“I like to think about payment services like an onion. The core would be sending money across – anybody can do that. However, each payment company must have layers of services such as mobile analytics and security, and these are the ones that attract the consumer to pick a provider,” he adds.

According to Vaghjiani, one of these layers that is overtaking any other when it comes to innovation. It is the one centred around data, and companies able to leverage real-time data and use it in each transaction will see that a new range of utilities opens up for them. He points at GPS and how London’s neo banks have set new standards when keeping track of transactions, spending, direct debits, and so on.

The likes of Curve, Monzo and Revolut have all been relying on GPS’s service to process payments. GPS uses its External Host Interface (EHI) which, as Vaghjiani explains, has allowed them to create a real-time data feed of payments info on the user’s app, from amount, to location of till, etc. Curve is a prime example of how, by rooting each transaction to the acquirer, the fintech allows users to use one card to pay from any of their debit or credit cards, pre-selecting them in real time from their phone app.

The importance of real-time data tracking stems from a modern mentality in which consumers demand instant gratification while having less time to spend in bureaucratic processes. Vaghjiani points towards the new wave of KYC innovations that simplify KYC user authentication bureaucracies through the use of selfies, a

“blink test”, uploading passports to the companies’ systems, or even filming a video of Wearables have been pushing the limits of payment tech.

The new craze

Not only is data important to give consumers the ability to track and manage their spending, but also to provide that personalisation that we mentioned above. The prime example of this – no pun intended – is Amazon, and the way it keeps outdoing its current offering. Amazon has embraced the mobile revolution, and ultimately enhanced the user experience. It has done the same with data. As Komitzer puts it: “it has kept up with data tracking to the point where it has become the master of upselling. Just look at the recommendations at the bottom of your Amazon page. The way they do it is convenient, seamless – while extracting as much value from it as possible – and the customer doesn’t even realise.”

Fintechs aim to replicate what Amazon has done with data tracking but in banking. This way, fintechs would be able to offer better service providers to save money according to consumer data. Komitzer is very clear about this – those companies neglecting data analytics will fall behind the ones that do. Just look at PayPal and its opponents Visa and MasterCard. PayPal’s growth can largely be attributed by how it is able to gather and interpret consumer data.

The expectations for a seamless environment are growing, but it will take a few years for it to become a reality. Being able to purchase goods online as you see them in-store, and let your phone pay automatically as you walk out of the store, or perhaps swish your scarf past the till and be on your way, is perhaps a not- so-utopic view on consumer care that many fintechs keep in sight.

Suresh Vaghjiani says: “The transaction should be seamless yourself. The onion is just getting fancier. The idea is to offer value to the consumer, and the best way to do this is by giving them the widest choice.”

Henry Vilar

Junior Reporter

This article first appeared in the IBS Journal October issue

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