There are few economies in this world that don’t rely heavily on the retail sector. Shopping, whether for essential or luxury items, is something the vast majority of people do on a daily basis. It’s for this reason that payment processing is such an important industry, and any developments made within it tend to impact a huge section of the population.
A bit of background
It’s no secret that much of the sector’s recent growth has been driven by an ongoing decline in the use of cash among consumers. Research from Halifax highlights the scale of the situation perfectly – it found that notes and coins in the UK now account for just £17.99 of every £100 spent by its customers, down £3.03 for the year. The shift looks set to pick up some pace as well; regulatory body the Payments Council expects the number of cash transactions to fall by a third in the period between 2012 and 2022.
Alongside this has been the rapid rise of e-commerce; something that presents various new challenges for all involved. First, transaction processes must be quick, convenient and cost efficient, regardless of vendor/consumer location. Perhaps even more important than this, though, everything has to be watertight in terms of security – for the sake of consumer trust if nothing else.
Fortunately, requirements like these continue to drive innovation in the field, and the impressive results we’re currently seeing give a fantastic insight into the future of payment processes.
The Payments Council study mentioned above makes it clear that, as cash transaction figures continue to fall, the popularity of credit and debit cards among consumers is growing at some pace. In the same ten-year period, it expects card payments to have risen from just under ten billion to a staggering 17 billion. This growth is itself being influenced significantly by the introduction of contactless payment technology.
Much like the magnetic strip and ‘Chip and PIN’ methods before it, contactless payment technology has been welcomed with open arms by shoppers and retailers, with popularity growing constantly. According to figures from Visa Europe, 94.3 million contactless transactions were made by its European cardholders in 2013, compared to around 25 million in 2012.
These figures, when paired with the fact that there are now more than 80 million compatible cards in circulation in Europe alone, are evidence to the fact that the transition is already underway, but its growth looks set to continue affecting the payments market for some time to come. US-based market research firm MarketsandMarkets, for instance, believes the global contactless payment industry will be worth $9.88 billion by 2018.
The rise is easy to comprehend given the obvious benefits. First, the technology offers unmatched convenience for both parties, but it’s also as secure as Chip & PIN, making it safer to use than cash. At present, it’s only possible to complete transactions with a value of £20 or less, so it’s easy to track usage as well.
As mobile phones have evolved in the past ten years, peoples’ lives have undoubtedly become easier. The devices that so many of us now keep within arms’ reach 24 hours a day already have so many uses – the introduction of near-field communication (NFC) just means that paying for items is the latest big addition to that list.
NFC refers to the radio-enabled technology and related set of standards that allow smartphones and other handheld devices to communicate with one another. While it’s capable of transferring all kinds of information, its primary use in the retail industry is to carry a shopper’s bank details securely from their mobile phone to the point of sale equipment, and then beyond for authorisation. What this means is that buyers can complete transactions quickly and efficiently without having to produce anything more than the handset they’re likely to have to hand already.
Growth in this area will no doubt continue as smartphones become more accessible over time, but its future will depend largely on the support of manufacturers. At present, however, this doesn’t appear to be a concern. In September 2014, iPhone maker Apple announced full support for its devices as part of the Apple Pay programme. Google has also embraced the shift by introducing support for all mobile operating systems from Android 4.4 onwards.
Exciting times ahead
As technology improves, shoppers are likely to come into contact with a wide range of new payment processing methods. Decentralised currency systems, like Bitcoin, will no doubt change the way people purchase online as security concerns ease, for example. It may even be possible to authorise payments without any need for physical equipment, like cards and mobile handsets, if facial recognition technology becomes reliable enough in the coming years.
What’s clear is that the retail industry must adapt to any changes quickly if it’s to continue meeting consumers’ needs. The importance of convenience is at an all-time high at presence, and the same is true for security. It only makes sense, then, that shoppers pick and choose the businesses and products they invest in based on the payment options on offer.
Author: Graeme Parton