Cashless payment is becoming increasingly popular due to its speed, ease of use, and contactless nature.
Whether it be buying groceries at the supermarket by scanning a QR code, ordering and paying for a watch online using a mobile wallet, or paying the food bill at a community canteen using a SMS based e-voucher, retail users prefer to go cashless.
Types of Cashless Payment
There are several types of cashless payment already available in the market even before the pandemic. During the pandemic cashless payment systems gained more popularity due to its contactless nature.
Its wide acceptance in the market has influenced government and central banks to undertake projects in the direction of building a cashless infrastructure and payment system. We will explore some of the cashless payment types.
Mobile Wallets and Digital Wallets
Mobile wallets are in-built features or applications installed in the mobile that store various information like credit card, debit card, net banking details, coupon information, and even driver’s license. Mobile wallets have the ability to directly connect to bank accounts. They can also store purchased tickets like movie tickets, flight reservations etc.
Mobile wallets work on near field communication (NFC) technology and share some instrument instances on being brought close to a digital POS. Instrument instances are a collection of state information like credit card number, expiry, user name, and billing address.
Mobile wallets are for people who prefer not to carry cash for in-store purchases. Digital wallets are similar to mobile wallets but for online transactions and may not be installed only on mobile devices. Digital wallets are an important part of the digital transformation of the eCommerce ecosystem
A recent survey by Deloitte along with Paypal shows retail merchants are embracing digital currency to increase their mode of payment and gain competitive advantage. Cryptocurrencies are exchangeable digital assets developed and maintained by decentralized blockchains.
When coming to retail space there is a growing acknowledgement of stablecoins. Stablecoins are cryptos whose value is pinned to some underlying asset like some commodities or government currency.
Coming back to the survey, 64% of the surveyed merchants responded that their customers are ready to use digital currencies for payment. 93% of the merchants who allow crypto exchanges have seen an improvement in customer base growth, brand perception amongst other important growth metrics.
While cryptos might be an important mode of cashless payment to adopt, 89% of the survey respondents sighted some kind of integration challenges. It is better to take help from some IT outsourcing services whether it be integrating cryptos to existing financial infrastructure, build a system that allows exchange of all types of cryptocurrency coins, or any other IT infrastructure handling challenges related to this.
Quick Response Codes are one of the most popular cashless modes of transaction. In fact, the QR code payment market is projected to grow to a valuation of $33.13 Billion by 2030.
QR codes are machine readable barcodes that store merchant payment related information. Once the code is scanned it takes to a payment page where the user can use various modes of online payment including some digital wallet like Apple or Google Pay to complete their transaction.
BNPL(Buy Now, Pay Later)
BNPL is a mode of purchase where a retailer doesn’t pay the full amount at the time of purchase. This is a kind of loan provided against credit card allowing multiple interest-free payments in installments. BNPL encourages consumers to buy expensive items in a planned manner.
Companies Testing Cashless Payment Ecosystem
There are several companies working to make retail transactions cashless as a part of the digital transformation of the retail ecosystem with their innovative products.
Amazon introduced Amazon One for cardless payment using the shopper’s palm in 2020. Initially the shopper has to go to a Amazon designated POS with their card to link their palm. Once done in all future shoppings they can just hover their palms over a scanner to check out.
Apple has introduced Tap to Pay in their iPhone. Once a customer heads for the checkout they can hold their iPhone to pay with their Apple Pay or any other digital wallet installed in the phone.
Google has a lot of innovative products accelerating the popularity of cashless payment. For instance, Google Pay is a very popular mobile wallet that allows users to scan a QR code or registered number of another user to transfer money. At a POS an user can scan a QR code and the money will be directly deposited to the merchant account.
Google also have partnered with Coinbase to accept cryptocurrency payments for its cloud services. Google is becoming the fastest growing company to accept crypto payments in the web3 space.
What Banks and Fintechs Can do To Encourage Cashless Payment
As mentioned, the shift towards digital payments was already underway before the pandemic. However, the pandemic accelerated this shift, and many firms are now looking to expand their range of products and services to meet the growing demand for digital payments. Additionally, the pandemic has exposed some gaps in the payment ecosystem, and firms can consider certain approaches to resolve this:
Invest in integrated payment solutions to help meet merchants’ digital-first needs.
Merchant acquirers and traditional banks have an opportunity to leverage the transition from outdated point-of-sale (POS) systems to integrated solutions, driven by the growing popularity of digital payments. To tap into this trend, these entities may need to collaborate with or develop industry-specific software, such as ordering or business management tools, to support the upgrade process. Additionally, they should consider expanding their merchant base through acquisition. Offering affordable
options to small businesses, such as payment acceptance through tablets or smartphones, could also be explored as alternative form factors.
Expand to adjacent areas to provide more “money management” capabilities
Similar to how mobile phones revolutionized consumer capabilities, integrated point-of-sale (POS) systems have the potential to empower merchants by offering enhanced functionalities. To maximize this potential, payment companies and FinTechs should consider bundling additional software-based services like checking, payroll, and cash management alongside their payment solutions. For instance, some FinTechs have collaborated with banks to provide merchants using their payment processing platform with debit cards and checking accounts. From the perspective of banks, extending their licensing and offering banking products through these partnerships can expedite the acquisition of small business customers compared to standalone efforts.
Explore the viability of new payment flows
The advent of digital payments is bringing about a shift in payment dynamics, including the emergence of digital currencies like Bitcoin. As merchants increasingly accept these currencies and institutional clients incorporate them into their treasury operations, they are starting to permeate the traditional banking system. This integration of digital currencies may necessitate traditional payment companies and banks to address technological disparities in order to effectively handle a currency that operates differently from fiat.
Cashless payment is one of the key features contributing to emerging mobile trends in retail and changing the way customers shop. This is an integral part of today’s eCommerce and a necessary integration for brick-and-mortar store retailers to stay ahead of the competition. Integration assessment and challenges should be carefully examined before implementation and retailers might consider taking the help of third-party professional IT services.