Payments: what happened in 2018?
We look back at the predictions we made at the beginning of 2018, including our vision for voice-activated payments and cryptocurrencies, as well as a new role for cash online and the impact of PSD2.
Back in January, we identified 12 trends in payments that we thought were worth keeping an eye out for. In this article we’ll evaluate the impact of many of those trends on the payments landscape, as well as highlighting a number of other significant factors that have help define a year of substantial change.
The convergence of physical and digital retail
For a number of years, the line between online and offline retail has been getting blurrier. So much so that, according to our 2017 Lost in Transaction survey, 46% of consumers browse offers on their phone even as they scan the aisles at a bricks-and-mortar store.
With the launch of Amazon’s first physical outlet — Amazon Go — on the 22 January, it feels like we’ve come full circle. Despite some unexpected teething problems, the store has captured everyone’s imagination. And, rumour has it — though, to date, it hasn’t been confirmed — that Amazon plans to open a further 3,000 stores across the US.
Amazon Go’s success — incidentally, Amazon has also inked a deal with Kohl’s that’ll see it accept in-store returns for the first time — proves once and for all that physical stores have their place in the digital age. But, in order to survive and thrive, they’ll need to align with an increasingly non-linear buyer’s journey.
From frictionless to invisible
Amazon Go’s success also has other implications. If Uber, Netflix and others have relegated the payments process to the background, Amazon Go is promising to make it disappear.
According to our latest Lost in Transaction data, emulating Amazon’s ‘Just Walk Out’ technology has become a short-term goal for many retailers. 12% expect to be able to offer a similar experience within six months, while a further 28% are looking to do so within the next two years as physical stores attempt to keep pace with the seamless checkout experience that is developing online.
Yet, despite retailers’ enthusiasm, our research suggests consumers aren’t ready to let go of the wheel completely when it comes to payments. 47% of respondents told us they worry about being charged for things they didn’t buy. 31% are worried about controlling their spending. And 28% are worried about inadvertent purchases. So, for invisible payments to gain wider appeal, businesses will first need to convince consumers of their security.
“Alexa, pay my gas bill”
Smart speakers took the world by storm in 2017, and their popularity shows no sign of abating this year. The market grew by 187% in the second quarter of 2018, with ample scope for further growth. But will this enthusiasm for smart speakers lead to mass adoption of voice-activated payments?
In June this year, only 15% of respondents to our Lost in Transaction survey told us they’d used voice-activated payments. 39% felt the technology was still too risky and unknown.
That said, there’s a considerable effort being directed at boosting consumer confidence. Major banks such as Barclays and ING are already on board, too, so voice-activated payments could well hit the mainstream sooner, rather than later.
PSD2, open banking and the evolution of customer data
The payments industry had been awaiting 13 January 2018 — the deadline for PSD2 implementation — with anticipation and, we daresay, trepidation. But, 12 months down the line, we are yet to see the big bang moment everyone was expecting.
Many banks have been understandably reluctant to let go of their data. Coupled with the cost of overhauling legacy infrastructure and a lack of common implementation standards across the EU, this seems to have put a spoke in innovation’s wheels. So what lies ahead?
The consensus seems to be that PSD2 will leave its mark. But it’ll take time. The regulatory technical standards of Strong Customer Authentication with regards to PSD2 come into force in September 2019, so we should see a marked change in direction from the banks once this is implemented. Meanwhile, at Paysafe, we were one of the first third-party providers to obtain a PISP licence. And we’re working hard to develop new products that’ll deliver the benefits of open banking to consumers, including more personalised offers, better rewards and safer payments.
Cash is going digital
Cashless payments, and contactless in particular, have grown in popularity during 2018. Meanwhile, the amount of cash in people’s wallets has continued to dwindle.
In the US, which has lagged behind the UK and Canada when it comes to contactless adoption, both buyers and sellers are finally getting on board. Our Lost in Transaction study forecasts 60% of US stores will accept contactless by 2020, up from 37%. At the same time, 30% of consumers prefer to shop in places that accept contactless, and 79% of those who use it want the limit raised.
That said, cash is far from dead. Consumers may be carrying less notes and coins, but 87% of those we surveyed in 2018 paid in cash during the previous month. And 83% used an ATM.
Cash is gaining traction as an online payment method too — and not just in traditionally credit-averse countries like Germany. One in five consumers told us they used cash replacements and prepaid cards online.
Businesses seem to be well aware of this. 30% of the US, Canadian, British, German, and Austrian businesses we surveyed now accept online cash replacements, with 15% planning to introduce them in the next two years. Similarly 38% accept prepaid cards, and 14% plan to accept them in the next two years.
The future of cryptocurrencies
Cryptocurrencies have been the ‘next big thing’ for a while, but their much-anticipated launch to mainstream adoption is yet to fully materialise.
In 2017, 30% of consumers we surveyed for Lost in Transaction told us they expect cryptocurrency payments to become more commonplace in the next few years. Meanwhile, 15% of businesses plan to start accepting them by 2020 — a 250% increase over the 6% who accept them to date.
According to our research, both retailers and consumers still have significant reservations. This is partly due to security and privacy concerns, but also because cryptocurrencies are extremely volatile.
Over the past 18 months, stablecoins — cryptocurrencies backed by traditional assets — have emerged as a possible solution to volatility. Could they be the breakthrough that legitimises cryptocurrencies and propels them into the mainstream?
2018 has brought about significant changes. Competition has become stiffer. Consumers feel more empowered than ever. And new technologies have continued to reshape the way we pay.
Moving forward, we can expect innovation to continue apace. But for new technologies to gain mass appeal, it won’t be enough for them to be quick and convenient. First and foremost, businesses and payment services providers will have to earn consumers’ confidence and trust.