Cashless: towards the new normal in payments

The year 2020 has meant a turning point in the cashless payments and  digital transformation process we have been undergoing for several years now. Unlike other economic crises when people looked for stability in their funds by increasing the demand for cash, the sanitary origin of the current situation has greatly reduced its use in favour of digital means, which in this context, have become the solution for our everyday payments.

Data about the rise in its use speak for themselves. Since the outbreak of the pandemic cash withdrawals have fallen over 50%, giving way to card and/or mobile payments. Moreover, forecasts show it is not a temporary use, but that digital payment methods will emerge permanently strengthened, thus fast-forwarding several years the adoption of these technologies.

Towards a cashless society

In general, the situation is very similar all over the world, where digital transactions are growing at its fastest pace in history. In Europe, the degree of adoption of these payment methods is leading some countries to consider a cashless society in the medium term, where electronic payments replace the use of cash until it completely disappears.  

Cashless appeared several decades ago with the “traditional” credit cards, but the true revolution came some years ago with digital transformation, where multiple digital payment alternatives have arisen based on contactless solutions and instant payments.

Thus, we no longer need to carry a credit card with us for in-person payments in shops, because we can integrate it in our mobile phone and pay with it, with our smartwatch or any other compatible wearable. This has led to contactless payment to be now used in 9 out of 10 purchases with credit cards and it is expected its use to be increasingly widespread.  

E-commerce payments have also been clearly strengthened, since this has allowed both customers and buyers to keep their access to usual goods and products even if they could not go and get them in person. This has doubled shopping through this channel during the pandemic, but most noticeably, many SMEs took the plunge into this method (normally, by means of marketplaces) last year.

Besides credit cards, digital transformation has boosted other type of more innovative alternatives to the use of cash. One of the most successful cases is bizum, the fintech created by the Spanish banking system with the purpose of channeling small payments between people through a mobile phone, which has risen from 6 million users to over 14 million, increasing by three times the volume of its operations. This has been possible not only thanks to the expansion of its private users’ market share, but also to its expansion to other types of payments such as donations to NGOs (it has already almost 3000 organisations), the recent implementation in e-commerce payments (implemented in over 10,000 stores, including major brands) and even, its first experiences in in-person payments (in the state-run lottery and betting stores).

And constantly, new options become available for the banks’ digital wallets, for the devices themselves (Apple Pay, Google Pay, Samsung Pay) or even for the most common social networking apps (Whatsapp, Facebook, LinkedIn, etc.).

In general, the rapid adoption of solutions for person-to-person payments and for payments in stores, both online and in person, has led young people not having cash in their pockets to become common. Maybe they will be the first generation to ever live in a completely cashless society.  

cashless payments

New Digital Payments ecosystem

It is important to bear in mind that last year’s frantic growth pace has been possible thanks to the fact that the necessary steps for the creation of a digital payment ecosystem had been previously taken. The emergence of Fintech companies as a new figure in the financial sphere, has been key because of the innovations these type of companies bring and because they have created the need for banks to evolve and compete and, at the same time, co-operate with these new players.

Aware that this ecosystem is under constant evolution and transformation, European authorities created an integrated framework for payment services within Europe (PSD2 – Payments Services Directive 2) with two main goals: to ensure that digital payments are secure and extend the current regulations to allow third parties to access information from customers’ accounts, what is called “Open Banking.”

Consequently, financial management has been democratised, from being completely linked to banks to being accessible through new players focused on giving a response to the evolution of customers’ needs, who look for security, personalization, easy payments and immediateness. In short, an improved customer experience.

These payment experiences are based on an appropriate use of data, both in their collection and storage and in their later processing. Mass adoption of cashless methods allows users to pay digitally for goods and services anytime and under any circumstances, creating large amounts of information on customers’ operations which are added to the already know data.

What possibilities does all this information offer?

In this context where the cashless payments grow bigger every day, the role of big data- and advanced analytics-based solutions is fundamental to combine this new information with the one we already have, with the aim of giving a response to the new needs and business models that arise and evolve.

First, the concept of “digital payments” must always be linked to that of “cybersecurity” because, without that, people and organisations are vulnerable to cyberattacks and their subsequent damage. But, at the same time, users should perceive a balance between security and user experience. Here, solutions based on a study of usual customer behaviour (login hours, device used, type of operations, etc.), which complement technological development itself (biometrics, facial or iris recognition, etc.), allow to identify anomalies in view of which, strengthened payment security, for instance and in accordance with the PSD2, is activated. Creating, maintaining and updating the necessary controls to ensure security becomes a fundamental aspect to ensure a competitive advantage in this new digital scenario.

Beyond security, alternatives are almost endless and affect many aspects, such as fight against tax fraud, money laundering and other illegal activities and the relationship itself of customers with their banks, as for the facilitation of payments and financing. But they especially affect the interaction of customers and companies in a world where the boundaries of everyday actions before buying and the features of the payment itself are increasingly blurred and where providing an experience which matches customers’ personal preferences is a key aspect in their loyalty. 

As a consequence, organisations (government, financial institutions, companies, etc.) face the challenge and opportunity to create value from these new large amounts of data at their disposal. For all this to happen, support from expert partners in technologies such as big data, machine learning and artificial intelligence allows to make the most of the available knowledge combining it with existing knowledge, with the aim of increasing effectiveness and productivity, improving transparency and security, strengthening trade relationships and, in short, fostering the competitive advantages of their businesses.

The digitalisation wagon, which has been accelerating in the past few years, has run over us during 2020, and in 2021 we must hop onto it, because technology, especially data-based technology, is fundamental to continue being flexible and competitive in this new normal.