How COVID-19 is accelerating the adoption of a cashless society
It's 2021, and some people haven't touched cash in a year. But is a truly cashless society as imminent as COVID-19 has made it feel, and how will cashlessness influence and shape the consumer experience in the months and years to come?
A 17,000-person global survey from MasterCard would have us believe cash is verging on extinction, with 82% of respondents saying they believe contactless payment options are "cleaner" in these COVID times. "Contactless payments are up to 10 times faster than other in-person payment methods, enabling customers to get in and out of stores faster," the report summarizes.
Digital payment platforms promise to marry our increasing reliance on mobile technologies with our blended online/in-person consumer habits. This trend has been in the works for several years especially as businesses seek to harmonize and expand omnichannel and multiplatform customer experiences (CX), although it has taken on a new sense of urgency in the context of the pandemic.
"This quantum leap in digitalization has also seen a boom in cashless payments. On the one hand, this was a consequence of the uptick in online shopping. […] On the other hand, the shift towards cashless payments had something to do with preventing transmission of the virus," said Burkhard Balz, Deutsche Bundesbank executive board member, at an online event in Oct. 2020.
The multiplication of payment options only makes sense in an increasingly digitized world, and industry insiders saw it coming like a freight train. Back in 2014, at the launch of Apple Pay, Apple CEO Tim Cook said, "Our mission is to replace your wallet, starting by focusing on payments." Now Apple Pay is on track to account for 10% of the world's transactions by 2025.
But there are several major caveats to be mindful of when considering a cashless future, ranging from financial inclusion of unbanked people, to fraud risk, to customer data surveillance.
What do businesses need to know about society's changing attitudes to e-payments, and how can companies leverage this information to provide better customer experiences?
The fits and starts of cashless societies
Cashless societies may seem inevitable given recent trends, but there are many kinks that still need to be worked out. The very definition of money is one of them.
Today in Sweden, fewer than 10% of transactions are presently made in cash. But the Nordic country, often hailed as a cashless pioneer, now finds itself at a major crossroads. In 2018, the head of the country's central bank explained: “For hundreds of years, the public has been offered central bank notes and coins. If cash stops working, it would leave all individuals to rely on the private sector alone to get access to money and payment methods." At the end of 2020, the country announced it was seriously investigating a digital, centrally distributed currency.
But we can't talk about the rise of cashlessness without discussing the prevalence of the unbanked population. With the World Bank estimating that 1.7 billion members of the world's population remains unbanked, digital payments tied to major institutions pose a risk of financial exclusion.
Discriminating against cash is illegal in many U.S. states. The thinking behind these bans is that cashless retail excludes certain types of people from participating in the economy, especially unbanked people — a demographic that includes low-income people, members of racial or ethnic minority groups and people with disabilities. The Federal Reserve says about 5.4% of Americans were unbanked in 2019.
Then there are underbanked people, or those with accounts who use a very limited number of financial services. For instance, seniors tend to prefer to pay in cash, and they make up 16.5% of the U.S. population. People living in rural locations often rely on cash more than urbanites, too. When we really think about it, there are many demographic and cultural divides that keep cash in business.
New digital options for unbanked people
E-payments haven't supplanted cash in many parts of the world because they are more often than not tied to major banks or government institutions, and for many unbanked people those are no-gos. Lack of trust, lack of proper ID and lack of consistent funds are the three big reasons why people choose not to open bank accounts.
However, solving e-payments problems for the world's unbanked isn't just a nice thing to do; there is a growing body of international evidence that indicates mobile money can have positive effects on regional poverty rates, and economies as a consequence.
Change is happening, and nowhere is it more obvious than in the developing world.
More than half the population of Latin America is unbanked. In Mexico, consumers have flocked to Amazon because of its partnership with Mexican convenience store chain Oxxo, which allows consumers to pay cash in-person for online goods. Other cash-to-digital solutions let users pre-pay digital accounts in cash, which they then use to shop online. That includes Argentina's e-commerce giant MercadoLibre, which operates Mercado Pago, a massively popular open banking platform that enables people without bank accounts across South America to sell and buy on the parent company's site.
Of course, these digital accounts are fed with cold hard cash. However, what we can learn from these e-payment experiments is that being unbanked is no longer the barrier it once was when it comes to digital payments solutions, and that will be a game-changing trend in commerce. For companies already serving, or looking to serve, emerging markets, tapping into alternative and cash-to-digital payments is critical to good CX.
Cashlessness and the customer experience
As we've seen here, many unbanked people are clamoring for digital payment options. For people with traditional debit and credit cards, however — especially those who have tap, which is popular in countries like Canada and the U.K. — adoption of e-wallets has been a bit slower. A card with an RFID-style chip can be read by the same tap-to-pay merchant terminal that can read mobile wallets, so in those jurisdictions it can sometimes boil down to a matter of personal preference.
And that's just it: businesses, both of the brick-and-mortar and digital varieties, are now expected to offer a multitude of payment options that enable consumers to use their preferred method.
They also have a little freedom to experiment. PaySafe Insights did a survey in which they found 56% of consumers had tried a new payment method since the outbreak of COVID-19. This could open the door to creating proprietary payment apps as a tool to promote customer loyalty — perhaps even ones that do not solely demand the participation of major credit cards or banks.
Of course, the adoption of any new payments will have to be preceded by a serious internal evaluation of data protections and fraud protocols. Ensuring all transaction-related data is safe from unauthorized access and collection is a necessity. So is making sure you have proactive customer service security messaging, as well as CX data breach and fraud protocols, to support your customers.
Payments trends suggest consumers are moving toward contactless payments as a matter of preference, and surveys indicate that this shift will likely endure post-pandemic.
With more and more companies starting to implement new e-payment solutions that cater to a broader population including unbanked people, being more inclusive about who is able to pay digitally can aid in a more widespread economic recovery, and spread the e-payments gospel too. Being thoughtful and prepared about the scope and breadth of your company's payment options will increasingly become a way to improve your overall CX, setting you up for future growth…and you can take that to the bank.