Due to the rise of alternative digital and electronic payment services, seldom has a week gone by without an industry expert predicting the end of cash as we know it. However, it might be plastic cards that are actually on the way down. Patrick Brusnahan reports
A new ‘cashless’ world is at the top of every industry expert’s predictions. From the increase of usage in digital wallets to the rise of ApplePay and other forms of social payment, many are eager to claim cash may soon be a thing of the past. In countries such as Sweden, four out of every five purchase are made electronically. According to UK-based Halifax, less than £18 ($28) of every £100 that’s spent by its customers is spent in cash.
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Most cash usage has shifted onto cards, with the increasing popularity of EMV and NFC aiding matters. However, Sameet Gupta, head of Virtusa’s Business and Operations for Europe, believes that the card market may not last much longer and will be replaced with more electronic options. He tells CI: "In the next 4-5 years, depending on the success of products such as ApplePay, we will see a mass adoption of these products.
"Newer banks are already going after this intentionally, so the old banks have to adapt and compete. They don’t have a choice."
While cards are convenient for consumers, this is less the case for financial institutions, especially when considering cost and resources needed to maintain the card system. Gupte says: "The cost of cards and the cost of people is very high. In an ideal world, why would you need 5000 people processing and issuing cards? It’s a lot of work.
"In addition, banks are putting huge amounts of money aside for regulatory fees. When banks are keeping all this money aside, where will they go to cut costs? They have to automate. Now the thought is: Why do we issue hard plastic cards when everyone now has a smartphone? Why can’t I have a dynamic card in my phone which is highly secure? That cost is zero. What if I have a virtual dynamic credit card in my phone, which looks cool and, at the same time, cuts $40m out of my costs? That is what’s driving this."
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By GlobalDataIn contrast, cards seem to be in a period of revival with the greater adaptation of NFC or contactless payments. In the UK alone, there are 58m contactless cards with 10 contactless transactions happening every second in the country. Surely, due to this, plastic is on the rise. Gupte conceded that, but added that it might not be that way for much longer.
He says: "We conducted a survey across 12 cities and what came out was that 40% of respondents still wanted a credit card, but, interestingly, the demographic of that group was majorly 35-year-olds and above. The younger guys were absolutely fine with going into a retail bank or online and opening an account and ending up with a secure app that they can open on their phone and use as a credit card. They don’t have to wait four weeks for the card to arrive; they don’t need to wait for a PIN. Perfect."
Similar to cash, cards will probably never disappear. Perhaps ‘death’ is a hyperbolic term when discussing this topic. After all, the death of tellers was predicted as ATMs started becoming a part of the mainstream and retail branches were supposed to die once online banking entered the market.
Gupte says: "It’s a question of comfort. If you told me 20 years ago that I would be able to do all of my transactions sitting on the train, I would not have believed you. Yet, this is what we all do now. Everyone wants to do things better, faster and in a different way. Also, by giving the cool image of a new digital world, I’m exciting my millions of customers and enticing other to be my customers. All these different factors are pushing it."
This future of digital overtaking other mediums looks likelier as each day goes by. Atom Bank, a purely digital and online bank is set to launch this year. Germany-based Fidor Bank, launched in 2013, is fully online as well; even to go so far as the amount of likes the bank receives on Facebook dictates their interest rates.
These examples, however, are few and far between. Gupte believes there is an amount of ‘scepticism’ with the new completely online banks, but they are ‘breaking ground and the big banks, as much as they see this as a phenomenon, will have to compete with them.’
There are some limitations. Movement might not be as quick due to regulatory measures and the financial industry not being able to keep the same pace as the technological side of the situation. Gupte says: "First; the EU has to agree on the tokenisation format. Second; not all of us can afford an iPhone 6. If the market is going to adopt, then every phone needs to the ability to have NFC. It will happen, Apple have already made the first play."
Gupte concludes: "Everyone knows that it is coming. Three of the banks that I’m talking to, they’ve hired digital officers and they’re young kids from the likes of Google or Amazon. They’re not traditional technology guys who have been with six banks and know how to run a payment system."
