Is the prospect of a cashless society becoming more of a reality in today’s market?The logic driving society towards the replacement of cash with electronic money is based on convenience and security. Cash is inconvenient to carry and can more easily be stolen than electronic money. On the other hand, cash provides privacy. (In fact, technology for digital cash does exist which gives the benefit of convenience along with privacy, but has to date not been widely adopted.) There is a trade-off between convenience and privacy, and convenience has historically won over privacy. For instance, the contactless ‘cash-replacement’ cards have been enthusiastically adopted for transport worldwide even though such cards allow the movements of the consumer to be tracked.
Why are we seeing a decline in traditional payment methods?
Traditional payment methods include cash and cheques. Cash is inconvenient and, in large amounts, insecure to carry, and is not always available at the point of need, whereas the electronic equivalents such as bankcards offer convenience, security and ubiquity. As more payments take place without the payer being in the same place as the payee; electronic money is a more convenient, fast and secure way of making such payments than cheques sent through the post, and particularly for cross border payments, more cost effective too.
Do you see this as an opportunity or a threat to the prepaid industry?
Prepaid cards – in their diversity – add several benefits to the proposition of electronic money, which should further reduce the dominion of traditional payment methods. First, prepaid cards can be made available to almost anyone, including various segments of society that had been hitherto confined to cash. In addition, within relatively modest limits, prepaid cards can be anonymous and can therefore offer some of the privacy benefits of cash. Therefore, the shift away from cash presents a robust opportunity for prepaid.
How is the credit crunch affecting the number of payments in Britain?
According to APACS figures released in February 2009, the number (as well as the value) of card payments grew by 7.4% (6.8% by value) in 2008 over 2007, with the share of debit cards increasing to 73.5% from 71.7% in 2007. Cash payments, which have been declining over several years, remained flat between 2007 and 2008. This suggests a relative move away from credit cards as a means of payment but also indicates consumer preference for card payments overall.
What challenges do suppliers/retailers face in pursuing cashless innovations?
Payments is a two-sided market, requiring both payers and payees to adopt common standards. Adoption of a new payment method by consumers will only take place if enough merchants will accept that form of payment, and vice-versa. There are sometimes ways out of this catch-22: piggy-backing on existing standards, such as the case of open-loop (VISA/MasterCard) prepaid cards that work with existing bankcard infrastructure; the presence in the market of a ‘killer app’ such as London Transport (in the case of Oyster contactless) that will compel the initial adoption by consumers.
With the additional costs involved and charges for accepting low-value payments (i.e., newspapers), do you think retailers are in favour of a cashless society?
Cash-handling is not without cost for large retailers – a labour-intensive infrastructure is in place to collect and account for cash from tills and to deliver the cash to a safe deposit. There are, however, several obstacles for retailers to readily accept low value electronic payments. Most obvious is that the pricing for card transactions tend to include a fixed charge (irrespective of the amount) as well as a variable charge (a percentage of the amount) – this particularly penalises low-value payments. Nevertheless, the larger retailers favour the move towards cashless since it would give them better control and security over money collected at counters.
What schemes are available to encourage retailers and consumers to accept the new technology?
Prepaid cards are making it possible for whole segments of society to enjoy the benefits of cards (convenience, security and even privacy – unlike mainstream credit and debit cards). As prepaid enters the mainstream, retailers will realise that a larger portion of their customers will want to pay by card. However, to realise the potential of cashless, the card industry still has to revise its pricing for low value transactions.
What benefits does prepay offer to the consumer over traditional cash payment?
Prepay offers the greater convenience and security of carrying money on plastic, and the ability to make remote (online, telephone order, mail order) payments.
What sort of timescale can we expect before the British markets experience an entirely cashless industry?
Cash will survive as long as banks will dispense it and retailers will accept it. This will continue to happen so long as there remain segments of society (the un-banked, the underage) which do not have ready access to electronic money.
(Smartcard News Ltd, 2009)
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