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Technology led transactions? Evolution of the payment market

Fraudsters continue to push the boundaries by exploiting the tokenization system within digital wallets.

Record year for illegal cryptocurrency payments: study
Total cryptocurrency payments rocketed 567 percent to $15.8 trillion in 2021, according to Chainalysis - Copyright AFP/File Asif HASSAN
Total cryptocurrency payments rocketed 567 percent to $15.8 trillion in 2021, according to Chainalysis - Copyright AFP/File Asif HASSAN

The payments market is evolving rapidly in the wake of the COVID-19 pandemic. The finance sector is witnessing a more complex payment market, with a diverse range of new payment product innovations and participants.

Looking at the changes affecting payments and currencies for Digital Journal isYousouf Alouat is Marketing Manager at The ai Corporation (ai).

The role of cash

According to Alouat, a role for cash remains: “As a result of these changes, digital payments have become a preferential payment method, as consumers reap the rewards in real-time and frictionless payments. However, despite declining in some areas, cash continues to be widely used in the global payments industry. Furthermore, although there has been a gradual decrease in the use of cash over time, the value of banknotes has actually increased during the pandemic, underlining the importance of cash during a crisis.”

However, Alouat  adds: “As the world transitions to a post-COVID economy, can societies expect physical cash to maintain its value, and what does that mean for the consumer and merchants?”

Alouat  predicts that although cash usage will continue to decline “A recent study by the RSA found that millions of people within the UK would find it challenging to engage in a digital economy and would prefer to use cash to buy goods and services. There are also complaints of losing of control of their finances. Despite the growing popularity of digital payments, cash remains an important payment option. As a result, industry-wide initiatives have been launched to preserve physical cash.”

As a further sign of cash longevity, Alouat  finds: “A recent agreement between UK major retail banks to share services, ensuring long-term cash availability across the UK may offer a glimpse of what we can expect. Crucially, merchants will need to ensure that they can cater to all segments of their customer base, as not doing could prove to be a competitive disadvantage in short to medium term.”

Consumer expectations

According to Alouat, consumers have become “More digital-savvy and expect a seamless payments experience that incorporates frictionless and contactless transactions. Merchants not only need to consider the payments experience, offering more choice and flexibility that enable consumers to carry out their transactions; but also delivering improved customer experiences by enhancing the online and offline experience. As a result, data and consumer insights have become a critical tool for optimizing payments transactions.”

Digital wallets

Alouat says a key benefit of using digital wallets compared to traditional payment methods: “Is their enhanced security capabilities. The conventional card chip and pin method is now recognised across the industry to be outdated and no longer not fit for purpose. Digital wallets have far superior security capabilities, including biometric authentication, voice activation, QR Code and machine learning fraud prevention.”

Alouat also sees: “The growing adoption of digital payments and increased demand for smartphones and frictionless payments have contributed to the increased demand for digital wallets. The finance world has witnessed digital wallets exceeding cash for in-store payments, with the use of digital wallet-based transactions growing by 7 percent in 2020.”

He adds: “This may have been driven by concerns over the risks of virus transmission through banknotes, which led to many retailers no longer accepting cash payments. Health hygiene has contributed to this shift, leading consumers to take advantage of the contactless nature of digital wallets, but many experts argue the pandemic merely accelerated changes that were already underway.”

Fraud

Cybersecurity continues to be an issue says Alouat: “Despite these enhanced security capabilities, fraudsters continue to push the boundaries by exploiting the tokenization system within digital wallets. Making it impossible to identify the card used. Even if the wallet is blocked, fraudsters can move a stolen card to a new wallet. Merchants are now under pressure to ensure that they are providing compliant levels of security to prevent fraudulent use of their digital wallets.”

This loops the conversation back to cash and the residual advantages. Furthermore, Alouat  notes: “Access to cash reduces the risk of uncertainty during a crisis. It can be used as insurance for consumers, illustrating that cash is being retained for its value, even if it is not being used for transactional purposes. This is illustrated by the decline of ATMs (with usage on average 35 percent below pre-COVID levels) to withdraw cash.”

Are we ready to become a cashless society?

Alouat summarises the debate, noting: “As the demand for cash for payment transactions continues to decline and we transition to a digital-based economy, merchants will need to continue to bridge the gap between online and in-store by delivering an omnichannel approach that enhances the payments experiences for consumers, and recognize that cash will continue to have an essential role across broader society and the payments ecosystem.”

Written By

Dr. Tim Sandle is Digital Journal's Editor-at-Large for science news. Tim specializes in science, technology, environmental, and health journalism. He is additionally a practising microbiologist; and an author. He is also interested in history, politics and current affairs.

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