Cashing in on the changing checkout

The cashless wallet, like the paperless office, is one of those concepts that has been discussed ad infinitum yet still appears to be a long way from becoming reality. For all the leaps forward in payments technology, from near-field communications embedded into smartphones to the plethora of chip-and-PIN apps and attachments vying for the attention of small businesses, most of us still have wallets stuffed with coins and notes that we exchange every day.

Yet consumer behaviour is quietly changing. PayPal, eBay’s payments arm, processed a whopping $27 billion worth of transactions through mobile phones last year proving that most of our online auction bidding is now done via an app, not a website.

Weve, the mobile phone industry’s joint venture to target mobile commerce and advertising revenue, said it had revenue of £13 million in its first year as a fully formed company – as opposed to a startup situated above a jazz club in Soho – and has high hopes of taking a share of the mobile display advertising market projected, by the Internet Advertising Bureau, to be worth £611 million by 2015.

Meanwhile, the push for contactless payments is slowly making its presence felt. There are 20 million Barclays cards in British pockets that can be used to wave through payments of less than £20 and contactless accounts for around 1.7 per cent of the 958 million monthly transactions made via plastic every month.

Thus it is apparent that, as the technology becomes easier to use, more secure and trusted, and more widely deployed by retailers at the tills, then consumers are willing to use it, albeit with the bridge of an existing technology they know and already use, such as a plastic card, a smartphone or the mobile app version of a popular website.

Work still needs to be done to convince consumers that plastic transactions with no PIN are secure

Yet why are retailers, mobile phone companies and payment processors so determined to do away with cash at a time when the Bank of England is introducing fancy new 12-sided pound coins and putting Jane Austen on the £10 note? Weve, for example, has sucked up £38 million in investment so far and returned a £25 million loss in the first year, which sounds like tough going.

The answer is two-fold: efficiency and opportunity. Tesco has estimated that it is six seconds quicker to process a transaction by waving a card at the terminal rather than fishing cash out of a wallet or waiting to tap a PIN number into the terminal. Six seconds sounds like a marginal improvement, however it could have a profound impact on the length of queues, not just at the supermarket till, but at coffee shops, petrol stations, cafes – pretty much anywhere you find lines of angry, impatient consumers.

Happier customers tend to return, but there are also clear benefits for the retailers themselves who can process more transactions per till and eventually cut costs by reducing the number of checkouts and people working at them.

That doesn’t just apply to retail behemoths such as Tesco or Pret A Manger. Visa Europe conducted a European survey and found that merchants in France, Germany, Britain and Poland overwhelmingly regarded mobile point-of-sales systems as a key selling point. Half in Germany believed it would increase sales, while 45 per cent of Italian small businesses said it would also increase cash flow, the lifeblood of any micro-business.

Work still needs to be done to convince consumers that plastic transactions with no PIN are secure. That lack of trust remains an Achilles’ heel for the payments industry despite UK Cards Association numbers showing that less than £70,000 was pilfered from lost or stolen cards last year, representing 0.016 per cent of total fraud.

Speed at the till is only half the story. The Holy Grail for advertisers is to couple loyalty schemes, such as Nectar and Tesco’s Clubcard, more closely to payments across a consumer’s entire spending history and there is no better place to harvest that consumer data than from a smartphone if it is being used as a payment tool.

Around 90 per cent of people with a smartphone now use their mobile device to plan a holiday either searching flights, booking hotels and checking in online, and of course paying for it. That provides a golden opportunity, not only for companies advertising travel services, but also those selling everything from insurance to sunscreen or luggage.

This is still a nascent market and most people do not want to give up information about their habits in case they are inundated with unwanted and mostly irrelevant advertising material. Striking a balance to use payment information and buying patterns with appropriate and relevant marketing material will be the key challenge for all stakeholders looking to push more transactions on to smartphones.