This year celebrates 50 years since the first ATM was set up and 10 years since the first iPhone entered the market. The impact of both of these innovations on payments has been profound, and assessing the shifts in behaviours since both of these product launches can help guide predictions on further evolutions in payments. Fifty years on, cash is still king, and cards are becoming more flexible and convenient than ever before, whereas digital payments are still relatively new, with a long way to go before becoming ubiquitous. Surrounded by FinTech heroes evangelising about a ‘cashless society’ and the latest hyped up technology that could change the world at Money 20/20 Copenhagen, RFi Group’s Sarah Hollinshead met David Dechamps, Head of Digital Payments for Mastercard Europe, to understand what this means for cash and cards. Furthermore, to ponder where we will be on the 50th anniversary on digital payments.
Dechamps begins with a candid look at current payment preferences, and admits that mobile is exciting, but nowhere near the potential it could reach.
“The customer decides, and if the customer is happy with using a card, then who are we to tell them to switch to anything else? There needs to be a good reason to move to mobile, and this is indeed an evolution that has not really complete yet. A few people use it, early adopters, but mobile payments are not mainstream, we are at an early stage of development. Currently, why would you pull out your mobile instead of your wallet and card, if it does not bring anything on top?”
The key to understanding how payment methods will evolve is through determining what ‘edge’ digital payments have on cards and cash.
“What will really make a difference is the value of services that mobile payments provide on top. You have a screen on a mobile phone, real estate basically, that can be leveraged to provide additional services. For example, notifications, check of balance, update your credit limit on the spot etc. You have to really differentiate it from a piece of plastic to increase perceived value.”
Cards are clearly important to Mastercard, who have led the card boom over the last 40-50 years. Dechamps sees contactless card technology as the important stepping stone to future technologies.
“The great user experience of contactless cards is encouraging cash replacement. Furthermore, it enables us to pour out contactless infrastructure which we can also leverage mobile payments on. So, an important part of this technological evolution is a plastic card.”
"You have a screen on a mobile phone, real estate basically, that can be leveraged to provide additional services on top of payments."
To assess the speed of this revolution in detail, Dechamps highlights three key areas that are driving the current change, transforming this “evolution” into a “revolution”.
“Consumer expectations are one driver, with people expecting payments to be embedded into a commerce experience in a seamless way. There is no room for seemingly useless steps in the process for fear of drop off.
Secondly, of course, are new technologies; starting with the mobile phone, moving to biometrics, IOT, wearables, in-car payments etc. A lot of companies, such as car manufacturers, are diversifying their services as margins are shrinking, so we predict that we will have payments embedded in more and more environments going forward.
Lastly, regulation – PSD2 and data protection laws - all help enforce strong authentication across the board. The challenge is how to achieve this in a seamless manner.”
Yet time is still the most crucial factor when it comes to true widespread consumer adoption.
“The step between tech-geeks and early adopters to having mass market support, takes a lot of time, we have learnt this in the past. We all agree things are happening faster now than ever before and barriers to entry are lower. However, managing consumer perceptions, anticipating them, reassuring them, it all takes a while. And in any alternative solution, there needs to be an acceptance network, which we are used to building from experience over the last 40 years.”
A huge element impacting adoption of new payment methods is their perceived security, and Dechamps believes that tokenisation provides the solution to showcase the secure nature of payments as they diversify.
“Tokenisation is key to the digitisation of payments. It acts as an extra layer of security in the back-end, but also as an enabler. Imagine you have your mobile banking app which shows where you have your card stored at e-commerce merchant sites, or linked to wearables/IOT products, and you can view each token and activate/deactivate when appropriate. Even if not actually used, the extra layer of comfort here is important.”
Perceived security can be built over time, from an absence of any tales of fraudulent activities. Therefore, increasing security of the payment, as new methods are introduced, is also critical.
“Tokenisation is the first step. Combined with a strong infrastructure of authentication, that PSD2 will bring, this is huge. Then also combine this with biometrics, which is extremely convenient and secure. Lastly, bring in dynamic linking. This ensures that the data of the payment floating through the network cannot be compromised, as a digital signature is generated upon payment which can be checked by the issuer, so they can authorise the transaction.”
Whilst the payments industry continues to come up with new innovations to create easier, faster and more secure payments, multiple new players have entered the market, to shake-up the creaky payments system. Dechamps however is optimistic about Mastercard’s future.
“Everybody is under threat, but with that comes multiple opportunities. You can either cry about it, or decide what is the best solution and try and find your space.”
Dechamps highlights Mastercard’s historic experience as the central point for the industry to connect, and believes this will continue as the eco-system develops.
"What is behind those different devices and means though could still be a card, perhaps in a virtual sense."
“We have great connecting power, and continue to be great at it. This is connection via technology, allowing issuers and acquirers to connect via our network. Also, business wise, when connecting different parties; connecting banks to start-ups and vice versa so that these two worlds can come together. We have a legitimacy, a global reach and respected brand that will help us bring us forward.”
So, in fifty years, the likelihood of cash and cards being completely wiped out seems improbable, but the potential for digital payments, and the services that lay on top of these, are extraordinary.
“In the foreseeable future, we will have a distribution of different payment means, through various devices and applications. What is behind those different devices and means though could still be a card, perhaps in a virtual sense. We have a very very large infrastructure, which is secure and convenient and is perceived as such.”
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