The pros and cons of using digital payments-only
Some retail outlets are experimenting with moving to digital payment-only operations. As non-cash payments become the norm, some retailers, particularly in hospitality, no longer accept cash. While there are downsides to managing cash, what are the pitfalls of refusing to deal with it? Here Richard Loh, MD of Eurostop, and Mark McMurtrie, Independent Payments Specialist outline the benefits and the disadvantages.
Cards have long dominated retail spending by value but according to the British Retail Consortium (BRC), they now also account for over half of all retail transactions too. Figures published by the BRC state that debit cards account for 42.6% of all transactions, whereas cash is 42.3%. According to UK Finance 77% of all UK retail spending was made by cards. This trend has been driven by the widespread adoption of contactless and other forms of digital payments, which have finally won over the British public. Both the London Business School and the Bank of England have suggested that contactless cards are fueling spending. It is less psychologically painful to pay for an item with a contactless card than it is to part with cash.
Digital payments are evolving fast
Ten years ago the payments industry was dominated by about 10 companies (banks, Visa, Mastercard etc.), now the payments landscape has changed vastly and we are looking at more like 500 companies providing payment services to merchants. While some of the payment services now on offer are highly specialised, overall the choice for the consumer has increased tremendously, and raised expectations through the roof. Consumers now expect fast and secure payments, no risk, and, no charges. This is driving down costs, increasing competition and squeezing margins for the acquirers (typically banks), most of which is good for retailers.
This new payments landscape has been driven by e- and m-commerce, of which most retailers have been a part. PayPal and digital wallets are the most obvious developments here, spawning a whole range of copycat services, and generally opened people’s eyes to alternative payment methods.
Everything is going mobile
Mobile comes in many different forms, it can be people shopping from their mobile devices, checking and comparing product details while out and about, it can be paying from a digital wallet (for example, settling the bill in a restaurant), in-app or social media payments, or can be mobile POS, taking the till in the form of a tablet or smartphone to the customer for customer assisted selling.
As the innovation continues, contactless payments are now evolving thanks to NFC enabled smartphones and the digitizing of cards. Physical contactless cards are no longer needed. This is significant for a few reasons for retailers. If consumers pay using their mobile (ApplePay, Google Pay, SamsungPay etc), the limit is much higher than £30, although few realise this. The customer has the mobile phone which provides additional authentication via fingerprint or other verification/ biometric method, so the risk to the card issuer is much lower. As this becomes more commonly known, so transactions values and volumes are likely to increase even further.
Another important benefit of mobile digital payments is the ability to collect customer data, for marketing use, and to send online receipts. This enables retailers to build a relationship with the customer after they have left the store or made their online purchase. Digital payments need to sit alongside loyalty and reward programmes in order to drive customer acquisition and retention.
Prepaid and gift cards are also an alternative to cash that continue to gain in popularity. These are used online as well as in-store and are available in digital format as well as plastic cards.
There will always be some element of cash
While the complete demise of cash has been predicted in some quarters for years, there are several reasons why we should hope that it doesn’t happen. Not everyone has access to a credit or debit card, or the internet, so a card only policy means that these potential customers are excluded. Some people will always want to pay with cash. Consumers come in lots of different groupings, with age being an important factor in their choice of how to pay.
There is also another reason that we should keep cash alive. If there were no hard cash alternative for payments, it would be very easy for fees to be increased because there would be no competition. A few years ago there was a public outcry when the banks announced that they were going to phase out cheques. While cheques are hardly ever seen in stores, they do provide a useful method of payment in some instances, for example, for charities, for the elderly or when sending payment by post. Now it is all about providing choice to the consumer, so cash is unlikely to be phased out any time soon.
And as for cryptocurrencies like Bitcoin – another South Sea Bubble or Tulipmania! At the moment, this is a technology looking for a problem to solve, and so far, it hasn’t found one in the legitimate, non-money laundering world!
Digital payments – The Pros & Cons
The benefits of going cashless can be summarised as follows:
- Less chance of fraud and robbery, as no cash held on the premise
- No cash handling fees from the bank, and no trips to the bank to pay it in
- Quicker transactions, better for the retailer and the customer, shorter queues
- Better marketing opportunities by collecting customer data for future use
- The average spend tends to increase when cards or contactless are used
- Required for e- and m-commerce
The drawbacks of banning cash:
- Excluding potential customers that would like to pay with cash
- If cash is withdrawn altogether, processing fees are likely to increase
- Less privacy for the consumer
In summary, there are many more payment types than ever before. Consumers are fickle and demanding, by offering a range of options, making it as convenient as possible for customers to pay, gives you the best chance of maintaining Customer Loyalty. As payment fees are decreasing, thanks to the efforts of the regulators and competition, you can afford to provide more flexibility without eating into profits.
Siemens Healthineers gains EU nod for $16.4 billion Varian buy
BRUSSELS (Reuters) – EU antitrust regulators on Friday cleared with conditions Siemens Healthineers’ $16.4 billion acquisition of U.S. peer Varian, paving the way for the German health group to become a world leader in cancer care therapy.
The European Commission said Siemens Healthineers pledged to ensure that its medical imaging and radiotherapy equipment will work with rivals in return for its approval, confirming a Reuters story. The pledge is valid for 10 years.
“High quality medical imaging and radiotherapy solutions are crucial to diagnose and treat cancer. The efficiency and safety of treatment relies on the ability of these products to work together,” European Competition Commissioner Margrethe Vestager said in a statement.
Varian is the leader in radiation therapy with a market share of more than 50%. The deal received the U.S. antitrust green light in October last year.
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Battling Covid collateral damage, Renault says 2021 will be volatile
By Gilles Guillaume
PARIS (Reuters) – Renault said on Friday it is still fighting the lingering effects of the COVID-19 pandemic, including a shortage of semiconductor chips, that could make for another rough year for the French carmaker.
Renault reported an 8 billion euro ($9.7 billion) loss for 2020 which, combined with gloomy take on the market, sent its shares down more than 5% in late morning trading.
“We are in the midst of a battle to try to manage a difficult year in terms of supply chains, of components,” Chief Executive Luca de Meo told reporters. “This is all the collateral damage of the Covid pandemic… we will have a fairly volatile year.”
De Meo, who took over last July, is looking at ways to boost profitability and sales at Renault while pushing ahead with cost cuts. There were early signs of improving momentum as margins inched up in the second half of 2020.
The group gave no financial guidance for this year, although it said it might reach a target of achieving 2 billion euros in costs cuts by 2023 ahead of time, possibly by December.
Executives said they were confident the carmaker could be profitable in the second half of 2021, but that they lacked sufficient market visibility to provide a forecast.
Renault struck a cautious note, saying it was focused on its recovery but warned orders had faltered in early 2021 as pandemic restrictions continued in some countries.
The group is facing new challenges as the European Union tightens emissions regulations and after rivals PSA and Fiat Chrysler joined forces to create Stellantis, the world’s fourth-biggest automaker.
The auto industry endured a tough 2020 but a swift rebound in premium car sales in China helped companies such as Volkswagen and Daimler to weather the storm.
Auto companies globally have since been hit by a shortage of semiconductors that has forced production cuts worldwide.
“The beginning of the year has shown some signs of weakness,” De Meo told analysts, but added the chip shortage should be resolved by the second half of 2021. “We have taken the necessary measures to anticipate and overcome challenges.”
Renault estimated the chip shortage could reduce its production by about 100,000 vehicles this year.
The group was already loss-making in 2019, but took a sharp hit in 2020 during lockdowns to fight the pandemic, which also hurt its Japanese partner Nissan.
Analysts polled by Refinitiv had expected a 7.4 billion euro loss for 2020. The group posted negative free cash flow for 2020.
The 2018 arrest of Carlos Ghosn, who formerly lead the alliance between Renault and Nissan, plunged the automakers into turmoil.
In a further sign that the companies have been working to repair the alliance, De Meo told journalists that Renault and Nissan will announce new joint products together in the coming weeks or months.
Renault has begun to raise prices on some car models, and group operating profit, which was negative for 2020 as a whole, improved in the last six months of the year, reaching 866 million euros or 3.5% of revenue.
Analysts at Jefferies said the operating performance was better than expected. Sales were still falling in the second half, but less sharply.
Renault is slashing jobs and trimming its range of cars, allowing it to slice spending in areas like research and development as it focuses on redressing its finances. It is also pivoting more towards electric cars as part of its revamp.
It was already struggling more than some rivals with sliding sales before the pandemic, after years of a vast expansion drive it is now trying to rein in, focusing on profitable markets.
De Meo told journalists on Friday that the French carmaker will make three new higher-margin models at its Palencia plant in Spain, where manufacturing costs are lower, between 2022 and 2024.
($1 = 0.8269 euros)
(Reporting by Gilles Guillaume and Sarah White in Paris, Nick Carey in London; Editing by Christopher Cushing, David Evans and Jan Harvey)
UK delays review of business rates tax until autumn
LONDON (Reuters) – Britain’s finance ministry said it would delay publication of its review of business rates – a tax paid by companies based on the value of the property they occupy – until the autumn when the economic outlook should be clearer.
Many companies are demanding reductions in their business rates to help them compete with online retailers.
“Due to the ongoing and wide-ranging impacts of the pandemic and economic uncertainty, the government said the review’s final report would be released later in the year when there is more clarity on the long-term state of the economy and the public finances,” the ministry said.
Finance minister Rishi Sunak has granted a temporary business rates exemption to companies in the retail, hospitality, and leisure sectors, costing over 10 billion pounds ($14 billion). Sunak is due to announce his next round of support measures for the economy on March 3.
($1 = 0.7152 pounds)
(Writing by William Schomberg, editing by David Milliken)
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