Apple Pay made its much awaited debut in October 2014, and as with everything Apple does, the conversation on alternative payment mechanisms has gained center stage.
Is there even any credence to all the clamor about new payment mechanisms? What happened to good ole' cash, checks and credit cards?
Business Insider's data on cash payments shows that the usage of cash is set to decline at a rate of 1.1 percent on a compounded annual basis. Check payments, the mainstay of the formal payments economy for about a century, are declining much more rapidly at 10.8 percent.
Ryan Rommann writes in an interesting piece in Forbes that Americans are twice as likely to carry a phone as cash; the figure goes up to four times for millennials.
According to Accenture's study on payment mechanisms, 40 percent of consumers have already used their mobile phones as payment devices in 2014. This number zooms to 52 percent among millennials. The same study goes on to reveal that nearly 80 percent of users would switch to mobile payments with the right incentives (i.e., discounts and coupons).
Here's a rundown of the popular emerging payment technologies:
1. Mobile wallets: Very few of us haven't actually used a digital wallet - PayPal anyone? A digital wallet holds money in digital form in your account and allows you to pay for things you buy online. The primary benefit of a digital wallet is the security it offers users. No payments are released till the goods are delivered. Since you don't give your credit card number to the merchant, there's no chance of fraudulent transactions either.
Taking this digital wallet concept to the mobile space, Google launched its Google Wallet for Android devices in 2011. Users can link their bank accounts or debit and credit cards, loyalty cards, coupons and store credit notes to Google Wallet and pay at retail outlets by simply tapping on a near field communication-enabled point-of-sale (POS) machine and entering their personal payment PIN. No swiping cards, no counting out change!
Apple Pay uses the same payment format with a few modifications like Touch ID as a payment validation and generating a unique payment token per user that's stored locally on the phone, thus reducing the chance of fraud even further.
2. Mobile POS systems: Humble POS machines that retailers have been using for decades now are getting a facelift too. It's no longer necessary for a user to walk up to a cash register to swipe their card. They have the option of swiping their card at a mobile POS point anywhere in-store - or even outside. For instance, if you're planning to attend a trade show, you could integrate a mobile POS into your system and turn your smartphone into a portable POS station.
These POS systems sync with your inventory and update records on a real-time basis. They also allow you to sync your sales and inventory in your online and offline stores. Furthermore, you can even capture customer data like email ID or date of birth via these mobile POS machines, then apply it to your CRM program later. If you're considering taking the mobile POS leap, here's a step-by-step process to pick the perfect POS system.
3. Bitcoin: The controversial child of the new wave of payment systems, Bitcoin has received its fair share of attention - both positive and negative. Bitcoin is an open-source cryptocurrency that only exists in digital form. It's not controlled by any national or international governmental authority. Its prices fluctuate based on demand and supply. As of today, one Bitcoin equates to roughly $276 USD.
Bitcoin is primarily attractive to users who are keen to save on transaction fees on transferring money online, as well as those who prize their online privacy extremely highly. Users buy Bitcoins from Bitcoin wallets like Coinbase and store them in their secure online vaults. When they make a purchase online from a merchant that accepts Bitcoins, all they need to do is transfer the appropriate number of Bitcoins into the merchant's account just as they would pay cash at a cash register. The merchant need not know your name, address, credit card number or any other personal details.
With Bitcoin growing exponentially in popularity, experts forecast 50 million users by the end of 2015. By next year, Bitcoin users will outnumber PayPal users. Time to consider upgrading to Bitcoin payments?
4. QR code-based payments: So far QR codes have been treated as a marketer's toy, a minor tool that could be used to create quizzes or give out coupon codes. With the advent of payment mechanisms like Zapper and PayPal's QR code reader, users can now scan QR codes printed on a receipt and the required amount is automatically credited to the merchant's account.
Target has implemented QR codes on select products. The next time you're shopping at Target and an item catches your fancy, don't bother going up to the cash register to pay for it. Just scan the QR code on the product (with your Target payment app) and the amount is immediately deducted from your account, and the product is shipped off to your registered address.
Starbucks' mobile payment app works on QR code technology as well, but uses it backwards. The app generates a QR code that contains the user's payment details. When the user's phone is scanned by the existing POS system at a Starbucks outlet, the amount due is debited automatically from their account. The genius in this system is that instead of printing a QR code in the receipt and letting the user scan it to make payments, Starbucks instead modified its existing infrastructure to accept payments.
5. Person-to-Person (P-to-P) payments: P-to-P payments basically deal with payments made by users to their friends, kind of like splitting a check at a restaurant between two to three friends. The most common use cases for P-to-P payments include dining, gifting cash, entertainment (e.g., movie or event tickets), household utilities, rent, etc. Apps such as Venmo allow users to send money to their friends by writing a simple message and the amount to be transferred via their smartphones. The best part about P-to-P payment apps is that money transfer is either free or negligible, depending on the card or bank account linked to these apps.
P-to-P payments currently log in about $13 billion in transactions annually. This figure is set to grow by over five times in the next three years to $68 billion. To put that figure into perspective, friends paying for other friends will amount to the 2014 annual revenues of Comcast, the world's largest cable and broadcasting company.
Benefits of Going Cashless and Cardless
The data and trends discussed above indicate a rapid invasion of never-before seen payment mechanisms. These mechanisms don't just make the process of payments easier for consumers, but also improve payment security and user privacy. Some of these new payment methods actually help business owners learn more about users' buying behavior, which can then be applied to improve user experience and grow conversions.
Data shows that paying for a meal at a restaurant takes over 10 minutes per table. If the number of guests at the table number over six, the time taken goes up by 90 seconds per head. The benefit of alternative payments like the ones discussed above is that they save a huge amount of time for both the user and business owner. This time saved on processing payments can be used by retailers to focus more on taking care of the customer and improving their user experience.
Another benefit according to an MIT study is that consumers tend to spend more when they avoid paying by cash and use alternate payment modes like card or mobile instead.
With all those benefits racking up, it's time that you caught up with the times and moved on to the latest in payment technology.
Rohan Ayyar dons multiple roles in SEO and analytics at E2M, a digital marketing firm. Follow him on Twitter at @searchrook.
- People:
- Ryan Rommann
Rohan Ayyar is the regional marketing manager for India at SEMrush. His blog, The Marketing Mashup, covers digital marketing from the perspective of B2B, B2C, lead generation, mobile marketing, SEO, social media, content marketing, database marketing including predictive analytics, and conversion rate optimization. In addition, he'll look at emerging marketing technology and how marketers can use it. Reach Ayyar at searchrook@gmail.com.