By Paul Raymond, Director of Strategic Relationships at Conferma Pay
The coronavirus pandemic has seen seismic shifts in the way people behave and interact with traditional forms of payment. As businesses around the world start to reopen, Government guidance recommends contactless card payments to avoid unnecessary contact between customers and shop employees, which has been welcomed by many nervous customers who don’t want to touch cash. According to data from Link, ATM transaction volumes in the UK fell as much as 62 per cent year on year at the start of the lockdown.
Consumer behaviour has always driven innovation and technology in the payments landscape, and now more than ever businesses around the world are having to adapt their payment processes to not only ensure the safety of customers and employees but to provide them with the most secure and viable payment options long term.
The end of cash & transition to mobile wallets
There has been much speculation around the end of cash that has often dominated conversations around the future of payments. The unprecedented Coronavirus health crisis has only accelerated the demise of cash with volumes dropping by as much as 90% in Spain at the height of the lockdown. Countries such as Austria, which has been among the first to reopen bars and restaurants, have not seen a bounce back to pre-Covid levels of cash volume. So, is this the end of physical money?
Quite simply, consumers no longer need physical money as there are more than 300 different payment methods, with the vast majority being e-Wallets that allow people to make digital payments. The rise in popularity of alternative and digital payments has been growing rapidly around the world, particularly in markets such as China where at the start of 2020, just under half of in-store purchases were made via a digital wallet. However, today the vast majority of e-Wallets still rely on traditional plastic cards and their established payment rails behind the scenes.
Just as people in emerging markets leapfrogged a generation of fixed telephony and jumped directly to mobile, the same appears likely in payment terms. It could be that certain areas of the world skip a physical wallet full of plastic cards altogether and move directly from cash to truly digital and mobile payment methods.
Higher spending limits are driving mobile payments
During the pandemic many jurisdictions have increased Contactless payment limits, for example the limit increased from £30 to £45 in the UK. Such moves are welcome and help people to be more touchless when making day-to-day purchases using contactless-enabled plastic cards, reducing the risk of virus transmission. But is £45 really sufficient?
By using a mobile wallet such as ApplePay or GooglePay consumers can buy higher value products and services in a touchless manner. The additional security and authentication measures that mobile wallets can deliver mean banks are more comfortable with higher spend limits because the risk of fraud is reduced. So, if you want to buy a new computer, an airline ticket or a pair of designer jeans without touching the keypad, odds are you’ll be using your mobile.
Could the move to mobile mean the death of plastic cards?
The shift to mobile payments is a fairly safe bet, and we will increasingly use mobile wallets to complete both small and large touchless payments. But remember, these wallets are still enabled by traditional plastic cards behind the scenes and that’s the elephant in the room for many banks.
Issuing plastic cards relies on a real-world supply-chain behind the scenes, with a factory and distribution set-up that’s as vulnerable as any other during a crisis. In fact, some issuers really did find it hard to maintain these operations at the height of the Covid-19 pandemic. Really, when you have an e-Wallet that acts as the proxy for a card, and all a card really represents is a string of 16 digits that link to a specific account, why do you need a plastic card at all?
We’re finding our issuing partners are asking this question more and more often and in the B2B world commercial cards are rapidly being replaced by 16-digit Virtual Card Numbers (VCNs). These VCNs are typically provided on a one-off basis to cover each purchase and can include spend controls such as amounts, merchant codes and validity – all very helpful when you’re administering spend by thousands of employees. However, they can be set-up in a similar way to consumer cards with more open-ended spend limits too.
Moreover, it makes business sense that issuing banks adopt the virtual model for consumer cards too, distributing a card number directly to the consumer’s mobile wallet and doing away with plastic once and for all.
Commercial payments point to the path ahead
Of late, the B2B payments space has been one of the most interesting areas to watch when it comes to digital and virtual payments. Once a sleepy backwater of the payments world, corporate payment innovation is quickly reaching parity with the consumer world. The travel sector, which has a notoriously costly and complex payment process, is of particular note as digital technology has enabled a much more cost-effective and efficient process. The most prominent of these technologies is the virtual card, a card number that is used for a single travel payment. Being able to place virtual card numbers into travel booking systems and B2B payment platforms is delivering significant reconciliation, fraud prevention and ease of use benefits to the industry. But it’s only in the last year that mobile has entered the picture.
Now, thanks to our own work with Visa, its issuing partners can place virtual commercial cards on mobile for the first time. This is significant because it means a traveller can now pay not just for their upfront air and hotel using a company virtual card but also now all on-trip expenses too, such as restaurant bills or taxis – anywhere contactless, ApplePay or GooglePay is accepted. These were once payments business travellers made using cash or plastic but as travel begins again, we expect travel managers to empower their people with the most mobile and touchless payment experience possible.
On the consumer side we’ve already seen a rapid growth in e-Wallets – for example, ApplePay accounts for 5% of global card payments today, with analysts Bernstein predicting this will increase to 10% by 2025. As we continue to re-evaluate our behaviour in light of the pandemic one trend seems clear: payments are going to become mobile at an even faster rate.