Originally published in Wamda, April 2018
We’re at an inflection point in the history of payments. Led by countries like Sweden, where non-cash payments now outweigh cash payments, consumers are moving en masse to the widespread adoption of cashless payment methods.
Adopting this payment channel brings significant benefits to businesses – which ultimately track back to improved revenues. But the challenges go beyond the technical aspects. For digital transactions to succeed, consumers don’t just need to be able to pay online, but also to be convinced that paying online is a better option for them than using cash.
At the present time, ‘cashless’, more often than not, means using a credit or debit card at the point of sale, whether online or offline. In the bricks and mortar world, the use of a card as a payment method has been with us for a generation now, but the evolution of how cards are used sheds an interesting light on the fundamental drivers of a consumer’s choice of a payment method: Security, experience, and convenience.
We have seen card use evolve from signatures, to chip and pin [an initiative to implement the EMV (short for Europay, Mastercard, and Visa) standard for smart payment cards], to contactless – with each step improving the experience, but at each point raising consumer security concerns.
Along the way, we have seen businesses recognize the incremental benefits of each advancement in payment methods – such as the reduced cost of processing cash, and the reduced time waiting at the point of sale. We’re now deep into the next phase of the journey, which is the movement from physically using a card at the point of sale, to using digital payment methods.
Cash is still king in the region
Consumer confidence in digital payment methods is key to the adoption of ecommerce. We see this particularly clearly in the Middle East: The demographic indicators point towards a population ready to adopt ecommerce, though the rate of adoption still lags behind that of Europe and North America (with the proportion of online transactions in the UAE being around 10 percent of that in the US). However, the fact that a significant proportion of ecommerce transactions in the region still end up as a cash transaction at the point of delivery also points to consumer hesitation with digital transactions. Cash is still king, for the time being, and the challenge we face in the ecommerce ecosystem is to change that mindset.
Digital payments promise major opportunities
The opportunities presented by digital payment methods, for both businesses and consumers, are very clear. Businesses gain visibility over their transactions in real- time, and lose the administrative burden and cost of handling cash (in the US, Harvard Business Review reports that businesses lose $40 billion of cash to theft alone, each year). They are able to provide a highly secure, personalized environment for their customers to transact in, and coupled with this, a payment experience that is far superior than using cash in terms of speed, convenience, and confidence. It’s no surprise then, that we are seeing such a push from businesses to not just move to an ecommerce presence, but also to apply digital payment methods across other channels, such as social media, and even to bring digital payments into the offline world.
Based on our experience, businesses that adopt digital payments consequently find themselves able to change their business models, scale up and expand into new revenue streams. In the long term, cashless processes enable the margins of these businesses to grow by an expected 2-3x. It goes without saying, though, that this potential is only realized where it’s supported by consumer adoption. For the consumer adoption to accelerate to levels we see elsewhere in the world, the participants in the region’s digital payments ecosystem need to create an environment that drives consumer confidence through security and a demonstrable ability to minimize online frauds –changing the cash-focused mindset.
Invest in e-payments cards security
In the same way that retail stores invest heavily in physical security to prevent revenue leakage, so ecommerce practitioners should view the investment in digital payment security as equally significant from a customer experience and a revenue point of view. When done right, the antifraud mechanisms in digital payment gateways, integrated with card networks’ own 3DSecure processes [a security protocol to prevent fraud in transactions with credit and debit cards online], protect consumers from their cards being used fraudulently – in turn protecting businesses from the costs of chargebacks from fraudulent card use. An inevitable result is an increase in consumer confidence in digital payment methods – but it’s more subtle than that. The right antifraud controls will also lessen the incidence of legitimate consumers’ attempts to pay online being rejected, improving a business’ transaction success ratio, and again, increasing revenues and confidence in the channel.
Getting ready for the next stage
The next stage in the evolution of payments is the movement to using digital payment methods in the real world – as we’re seeing with methods such as ApplePay, where the device’s biometrics can provide an extra layer of security and convenience, or the use of QR codes at the point of sale, or even the ability to pay online without needing an internet connection. This, in turn, sets businesses up for the opportunities currently being conceptualized for initiatives such as blockchain, where digital payment methods are the keystone in being able to use data to link up all the aspects of digital service provision, in retail, transport, financial services and beyond.
Digital payments are unequivocally the future payment method of choice – and the responsibility rests with us to ensure that our consumers feel secure, and appreciate the improved experience, now, so as to be ready for what the near future has to offer.