COMMENTARY
Nov. 29, 2018
By Jason Bohrer, senior vice president and general manager - secure card solutions, CPI Card Group
Today, only 41 percent of Americans regularly carry cash, creating a demand for alternative payment methods and unlocking a world of potential for innovation in Fintech. As payment solution providers strive to be ahead of the shift, and in many cases push the cashless agenda, they'll be further confronted with consumers demanding developments that are in tune with their lifestyle. But adapting to better meet the needs of an increasingly cashless society won't happen overnight – so how will the financial services industry realistically bridge the gap between today and the cashless future on the horizon?
Among the payment innovations helping them do so are convenient prepaid debit cards, frictionless dual-interface cards and multi-use point-of-sale (POS) systems.
Driver 1: Prepaid Debit Cards
The global market for prepaid is projected to reach $3.1 trillion by 2022, attributed to a number of factors including the decline of cash which has created a demand for more convenient alternative payments to replace traditional currency. In the past, prepaid cards were predominantly single-use (think gift cards), but that has changed with the introduction of connected devices that help create a tech-driven, multi-faceted use-case for prepaid that can be much appreciated as less consumers use cash.
Prepaid cards and corresponding mobile apps enable consumers to quickly send and receive payments with a few taps of a smartphone. For example, with the slowing usage of cash, services have emerged to make the act of allocating allowances simpler for families. Prepaid debit cards designed specifically for children and connected mobile apps for parents seamlessly facilitate the digital transfer of funds.
Other non-cash users can reap the benefits of similar digital services, such as Venmo, which is conveniently compatible with physical prepaid cards. The mobile app allows friends, family members and colleagues to send and receive money via their smartphones quickly and easily and put their Venmo balance onto prepaid cards for in-store and online shopping trips.
The application of prepaid cards in employee payments has also proved beneficial, from both the employee and employer standpoint. For instance, Uber's recent roll out of Instant Pay allows gig workers to receive their earnings up to five times per day, directly to a prepaid card. While drivers for similar ridesharing companies may need to wait over a week for their direct deposit to hit their bank accounts, Uber drivers can access their earnings almost instantly, giving the company a valuable competitive advantage in the acquisition and retention of drivers in the crowded gig economy space
Driver 2: Dual-Interface Cards
Another interweaving trend supporting the decline of cash is the shift towards contactless payments. Unsurprisingly, millennials are major proponents of contactless, with nearly one in five predicting a cashless society in the future where currency is no longer used. In order to keep up with the cashless agenda and meet the consumer (and especially millennial) demand for fast, frictionless payments methods, financial institutions are embracing dual-interface payment cards. Dual-interface cards are equipped with an embedded chip and antenna to enable both contact transactions (inserted or swiped at payment terminals) and contactless transactions (waved at payment terminals).
Today's American teenagers use cash for just six percent of transactions. As native adopters of payments technologies, the aversion to cash among younger consumers could potentially serve as a major driver of the widespread use of dual-interface cards that is now extending to both ends of the generational spectrum. Boomers and Gen- Z are increasingly being conditioned by the ubiquitous technologies around them and now expect a fast, frictionless experience at the point-of-sale – with dual-interface cards offering a desirable leap from fumbling for loose change and bills.
The ease of use and speed afforded by dual-interface cards makes the payment format well positioned to take over small-dollar transactions – which is one of the key factors that will drive the emerging cashless trend in consumer payments. Contactless transactions via debit and credit cards are expected to exceed $2 trillion globally by 2021.
Driver 3: Point-of-Sale Systems
As companies in financial services and beyond continue to push the cashless agenda through innovations in prepaid and dual-interface cards, it's evident that merchants will need to conform along with their customers. Today, the average consumer uses plastic for 28 percent of their total purchases, meaning that businesses relying solely on cash payments are leaving money on the table. As a direct result of this shift, the market for POS terminals is expected to expand by 11.5 percent from 2017 to 2025.
With the introduction of new POS technologies, businesses of all sorts – from a neighborhood smoothie stand to a nearby farmer's market – can adapt to the cashless society. POS software and hardware providers are critical proponents of the push towards cashless, enabling businesses of all shapes and sizes to not only accept plastic, but also mobile, digital and other contactless formats that continue to grow in popularity.
Emerging solutions in this arena are able to transform traditional smartphones and tablets into POS systems, used by independent businesses around the world, allowing them to accept magstripe, chip and contactless cards to meet the payment preference of any customer.
With cash disappearing from wallets, the payments landscape has seen a non-stop whirlwind of transformation, showing no signs of abating. As financial institutions, merchants and others navigate this transition in an effort to better serve their customers, solutions from payments technology providers are helping make sure the evolution occurs smoothly.
Topics: Contactless / NFC, Mobile/Digital Wallet
Companies: CPI Card Group
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