The rapidly changing payments landscape is affecting not just the way we buy and sell things, but the way we live our lives and do business. Cash is disappearing from our wallets and being replaced by cards and other payment methods while retailers and businesses must learn how to cope with an accelerating shift to online shopping.
Eric Horgan, country manager with card payment specialist Elavon, points to some statistics which highlight these changes. "The growth of contactless payments in Ireland is a good example of just how quickly the landscape is changing," he says. "In 2016 there were three million contactless transactions a week in Ireland. This had risen to five million a week by the end of 2017 and continues to grow. Cash is being displaced at a rate where Ireland is now catching up quickly with our Scandinavian neighbours. We have some way to go before we reach Sweden's level, where only two per cent of transactions are made in cash, but we are getting there."
The growth in debit card payment is another noteworthy trend. “One in four card payments are now contactless, including mobile payments such as Apple Pay and Google Pay,” Horgan adds. “We are also seeing a move from credit to debit cards. This could be a continuing hangover from the recession, with people remaining prudent and cautious in their spending habits. Back in 2015, debit card transactions outnumbered credit card transactions by two to one, it’s now 3.5 to one.”
An underlying trend revealed by closer analysis of the card payment statistics is the growth in online spending. “Ecommerce spending now accounts for 27 per cent of card spend and is growing at 10 per cent annually. This suggests that online shopping is still in its high growth phase.”
Regulation hasn’t been long in catching up with these changes. The Payments Services Directive 2 (PSD2), which was enacted into Irish law in January, will bring in new rules on customer authentication from the end of 2019.
“All payments transactions, with the exception of some contactless payments, will require two-factor authentication,” Horgan explains. “This means you will need to authenticate yourself using two of three things – something you know, something you have, and something you are. You know your PIN, you have your card or phone, and what you are includes fingerprints and other biometric information. This will have implications for large online retail organisations and their one-click payments systems, which will have to be updated to take PSD2 into account. It will also help ensure that the whole digital payments ecosystem remains secure.”
The additional layer of security need not slow down the payment or transaction process, according to Horgan. “We already use biometrics in payments in Ireland,” he notes. “When we make payments with our mobile phones the card is loaded on the phone and Apple Pay and GooglePay customers authenticate the payment using their fingerprint. Innovative ways of authenticating who you are will be developed to ensure the balance between speed and ease in the payment process and security is met.”
Technology is likely to influence the payments market in other quite unexpected ways, as Horgan explains. “The internet of things involves connecting almost any device to the internet. IBM has predicted that by 2025, 25 billion devices will be connected to the internet, making the global internet of things market worth $4 trillion. For payments, this introduces new concepts such as having your coffee machine order your coffee beans for you and your fridge ordering your milk. In effect, you are delegating payment authority to the machine. Widespread adoption of the internet of things will take time but we will see a growing number of devices authorised to make payments quite soon. Smart electricity meters will be able to buy electricity when it is cheapest, or when renewables are available, and TVs will be able to download and pay for shows according to user preferences.”
Businesses need to think about the consumer experience
Looking to the future, Horgan believes that Ireland’s progress towards becoming a digital “always-on” economy will require retailers to pay close attention to their customers’ experience to ensure it is consistent across all channels, both face-to-face and digital.
“Businesses need to think about the consumer experience,” he says. “Regardless of how they buy a product, customers want a consistent experience. They also want to be able to collect or exchange a product or obtain a refund in a physical shop even though they might have made the purchase online. The reverse also applies. This will require a rethink of the channels to ensure they are fully integrated.”
The payments process experience is also of key importance. “Abandonment rates during online checkout processes are colossal,” says Horgan. “Up to three out of four transactions are abandoned before completion in the online environment. Retailers need to pay attention to this and ensure the experience for the customer is as seamless as possible. For that, they need a payments partner who they can trust who will give them the assurances they need; that they have an optimal payments solution while they focus on growing the business.”
Horgan points to a risk which the growth of online shopping is posing for traditional retailers. “There is now a phenomenon known as ‘showrooming’. This is where retailers who present products in attractive displays are actually facilitating their online competitors’ growth. People visit the bricks and mortar store, choose the item and then shop around online for the best deal. Retailers have to think about the overall experience in their shop and make it as easy as possible for visitors to do business with them. This is particularly so with millennials, for whom the social experience of payments is quite important.”
Businesses struggling to keep up with the pace of change in the payments landscape can turn to Elavon for advice and guidance. “A big part of what we do is thought leadership,” says Horgan. “We look ahead to technological advances which haven’t even arrived yet and we also analyse the impact of regulatory changes such as GDPR and PSD2, and how they will affect businesses. This enables us to advise all of our customers, regardless of their size or their operating model, of the channels they use, and help ensure they get the payment solution they need both now and in the future.”