Who Benefits From Frictionless Payments?
Contactless payments are just the latest in a line of innovations introduced by the payments industry in order to make the process of paying for things simpler, quicker and more convenient. The goal? To move us away from a cash based society to one where payments are a source of income for the industry which enables them.
The cost of managing cash is one of the reasons why the payment industry came into being. For the customer in a cash based society having sufficient cash on hand to cover any of the purchases which might become necessary over the course of a day is inconvenient. For the vendor that cash is effectively worthless until the point that it is deposited into a bank account.
Cheques were the first alternative solution - and although they allowed a customer to effectively carry all of their wealth, without actually having to carry all of their wealth, they also slowed down the buying process. Writing a cheque, signing and cross-checking slowed the business of business. Irritating for one customer, painful and costly across a whole business day for the vendor. Who also had to deal with an even bigger delay before receiving the actually money.
The transition to payment cards removed most of the delay and irritation whilst also allowing vendors quicker access to funds. Contactless cards and smartphone payments only add to the convenience for both parties to the transaction.
However the Payment Card industry is providing a service which has to be paid for. It validates and guarantees payments, it ensures smooth transit of funds from account to account and it provides a common ground for vendor and customer to perform business. That has to be paid for. But by whom?
From next year the UK will ban surcharges on card payments. That means that the cost of using payment cards will need to be picked up by all consumers as a hidden cost in the retail price of goods. Whilst both vendor and customer benefit equally from the intermediary service provided by the payment card industry ultimately the cost of providing that service is borne by the customer.
With that cost equating to 2-4% of the purchase price of the product or service fee, it's a significant tax on all consumers whether they use cards or not.
Whether consumers ultimately decide that this is a price worth paying or not will determine how quickly retail and financial industries are disrupted. Would you consider a different payment method if it meant that every single thing you purchased was 4% cheaper? Just how much value do you put in the convenience card payments bring to your life?
These are the sorts of questions which open the door for the new and rethought services like Alipay and WeChatPay.