The Contact-Free Future

With the coronavirus crisis showing signs of continuing, contactless payments are gaining popularity.

Once merely convenient, contactless payments have skyrocketed during the Covid-19 crisis. Estimates for the value of the global market run from around $10 billion to more than $1 trillion, and the coronavirus outbreak is driving exponential growth.

“The increase in the contactless limit from £30 to £45 [$37 to $56] in the UK has helped greatly in decreasing the number of card transactions that need to use a PIN pad,” says Andrew Hewitt, director of Payment and Data Solutions at the global payments fintech FIS. “Additionally, the sentiment amongst shoppers and retailers that cash is ‘dirty’ and could spread Covid-19 has led to many stores refusing to accept cash on health grounds, regardless of the science,” he says. “This has massively reduced cash usage in the UK; ATM withdrawals year-on-year have halved. No marketing campaign could have been this effective in boosting contactless adoption.”

Countries that have been slower to go digital are especially keen to catch up now, given the Covid-19 threat. Last year, Italy, which ranks 25th on the European Commission’s Digital Economy and Society Index for 2020, launched the “cashless plan.” This “interesting” initiative aims to hasten adoption of digital transaction tools, says Liliana Fratini Passi, CEO of CBI, a consortium of Italian payment services providers, by offering incentives such as cash back to regular epayment users and later, a lottery. The moves will help the government obtain the €190 billion in taxes evaded each year.

Passi also thinks Italy should adopt the European Banking Authority’s recommendation to raise the €25 ($28) ceiling for contactless payments to €50. “This option would enable an increase of digital payments, thus leading people to a change of paradigm in their habits,” she argues.

Global payments solutions provider HPS has concluded two Quick Response (QR) code payment deals that reflect the World Health Organization’s recommendation for contactless payments. In March, HPS announced a unified QR code platform in Saudi Arabia that allows banks, wallet providers and fintechs to interact through an interoperable payment platform. In May, the Bank of Ghana, via its subsidiary Ghana Interbank Payment and Settlement Systems, chose to implement HPS’ Universal QR Code and Proxy Pay platforms.

Despite the timing, HPS CEO Abdeslam Alaoui Smaili says physical distancing is just an added benefit of QR codes. In Ghana, for example, financial inclusion was the primary goal. Having discovered that workers get paid in cash, HPS saw the benefit of electronic payments via mobile phones.

After “looking at the end of the chain—at the small stores where the workers are spending their cash—we then looked at where the shops are spending it: with suppliers of fast-moving consumer goods [FMCG],” Smaili says. “We then decided to offer them a solution too.”

QR codes were developed to improve inventory management, and Smaili argues this is where they provide additional value. “Delivery trucks that used to take an hour checking stock and counting cash at each shop no longer have to collect, count and manage cash,” he says. “And inventory can be instantly verified.” FMCG companies quickly grasped the value of the proposition; moreover, they were happy to pay for it, making it free to merchants. “There are these small sellers, in traffic jams, selling cigarettes, water and nuts, etc.,” says Smaili. “They have QR codes printed on their T-shirts. So customers can buy a bottle of water and pay 50 cents by just scanning the QR code on a T-shirt.” For workers, digital pay can be accessed more promptly.

In May, FIS launched iQ Now, a mobile app for Worldpay’s small and medium-sized enterprise (SME) clients that enables them to monitor business performance using mobile devices. It integrates data from banks and third-party financial institutions to provide a holistic view of metrics, from sales and cash flow to refunds and dispute activity.

Hewitt says that “iQ Now was built with the needs of SMEs in mind. It has proven particularly useful in the current Covid-19 environment, as it can help these businesses manage their operations remotely.” The app was designed to maximize ease of use and self-service. Merchants can use graphs and reports to drill down on key metrics, such as sale size and store productivity.

“Digital banking provides 24/7 access to real-time data and insight to inform and accelerate decision-making,” says Andrew Wright, vice president of Financial Services at digital business transformation consultant Publicis Sapient. Additionally, “Advanced chatbots and virtual assistants are overcoming initial resistance,” Wright says, encouraging SMEs and, increasingly, corporate clients to leverage them to improve their day-to-day operations and servicing.

Shift in Emphasis

Digital banking is also driving a welcome shift in emphasis from products to client service and outcomes, says Wright. Ultimately, that is enabling businesses to “access trade services that were once the preserve of large corporates.”

Payments have already become digital, contactless and invisible, for all practical purposes, as financial institutions push toward contact-free banking, says Santosh Tripathy, practice lead of Digital Payments at SmartStream.

Singapore’s DBS has outlined a series of digital measures designed to give its business clients contact-free banking, he notes. The bank has digitized 11 common trade financing processes to reduce reliance on physical over-the-counter exchanges. New technology forms the core of DBS’ digital strategy.

“We’re finding that the financial institutions at the forefront of this movement are leveraging the power of artificial intelligence and machine learning to gather invaluable insights from their data to launch new solutions,” says Tripathy. “Availability of cloud technology and cloud-based solutions has helped [speed] the adoption and rollout of digital solutions.”

That said, Wright doubts that many banks are truly digital-first and contact-free. “Many have implemented fantastic digital initiatives, but they’re rarely front-to-back solutions; and both incumbents and established challengers have been constrained by legacy systems, approaches and thinking,” he says. “This is why, in the SME space at least, we’ve seen the likes of RBS Mettle or HSBC Kinetic adopting a ‘startup’ neobank or greenfield approach.” Of the newer UK challengers, he says, Starling Bank and Tide stand out with impressive SME growth rates. Starling already boasts a 2.6% share of the UK SME market, while Tide has over 150,000 SME users of its mobile only business account.

“I have no doubt that the influence of digitally native banks will increase and extend into the mid and larger corporate segments over time,” Wright predicts. “In the meantime, incumbents will raise their game, harness the tremendous power of their transactional customer data, develop partnerships and haul themselves into a new digital and data-driven future. By then, of course, tech giants or once-small, monoline fintechs may well dominate what we once called corporate banking.”

What’s next? Tripathy predicts that the success of any digital banking solution will be dependent on the effectiveness of three factors: contact-free usage, connectivity and ease of use. With this in mind, he says, thought leaders in digital banking have placed security in the foreground of hands-free development.

“In addition to business value driven by the priority of delivering digital solutions, financial institutions are seen as rolling out solutions available exclusively on hands-free.“The future of banking as ‘Banking Everywhere but Never at a Bank’ is going to be all digital, but mobile first,” he concludes, referencing the final book in Brett King’s “BANK” series on the future of banking.