Now & Next: Payment Solutions

The recent pace of change in the payment solutions space has been rapid. From contactless payments, to mobile wallets, and now payment via QR codes, these advancements have led to talk of cashless societies. This edition of RetailTechNews’ Now & Next examines whether cashless societies could become a reality, the development of revolutionary mobile payment systems, and a future which could include paying for items using your suit.

Before examining the future of payment solutions, it is important to first understand the technology which holds it all together. Near-field communication (NFC) technology is a method of wireless data transfer that detects and then enables technology in close proximity to communicate without the need for an internet connection. In the case of contactless, they put an NFC chip in the card. In the case of a mobile wallet, there is an NFC chip in the phone.

How advanced are payment solutions?

It’s hard to pin down exactly where we stand with payment solutions, and there are two variables which make defining a global standard particularly tricky. The first of these is the fact that every retailer is at a different stage. An independent coffeeshop might not accept cards; a London bus won’t accept cash; a local pub might not be able to receive contactless payments; and most recently, an Amazon Go store can only accept mobile payments through their app.

The space is developing at a rapid pace, with mobile payments (payment through your smartphone via a mobile wallet or QR-code) currently being the most advanced technology that’s widely used. However, this does not mean that they will be the future for all retailers. Local shops, independent retailers, and small chains, for example, might not consider the cost of changing their payment technology worthwhile, if the number of customers paying through their smartphone is limited. At present, only 22% of UK smartphone users will use this device to pay for their goods.

Gaping regional disparities

The other factor that makes defining a global level of development in payment solutions so tough is that this level varies massively from market to market. A closer examination of Europe, the US, and China sheds further light on these discrepancies.

On the face of it, Europeans are spoiled for choice when it comes to payment options. Chip and PIN, contactless cards, mobile wallets, and (if absolutely all else fails) cash, mean that retailers have to be ready for any form of payment. However, we are by no means exceptionally advanced when it comes to our payment solutions. In fact, if mobile payments are both the current cutting edge and the future of payment solutions, then we are way off the pace.

Of all the contactless payments taking place in the UK in 2016 98% were done via card, rather than on smartphones (99% in Spain; 91% in Germany). What’s more, although double-digit growth for mobile payments in the UK will continue to 2020, this growth will slow throughout the forecast period, dipping to 8.5% by 2021 (having been 39% in 2016).

These results are symptomatic of a British love of cards as payment methods. One reason we are lagging behind is prevalence of contactless cards, with banks issuing these as early as 2007, and TfL enabling it as a method for paying for the tube and bus systems in 2014, they have become part of our daily lives. What’s more, with the UK lagging behind other European markets (such as the Nordics) for smartphone penetration, the user base is not there to create an urgency for retailers to adopt mobile payment solutions, and our payment technology development is suffering accordingly.

Mobile wallets lead the way in the US

Living in the UK, and being exposed largely to news about technological solutions designed in western markets, you could be forgiven for thinking America is the pinnacle of payment technologies. Generally a couple of years ahead of Europe in terms of technological advancements, 93% of all contactless payments in the US are made via mobile wallets (compared to 2% in the UK).

Amazon Go is a great example of what the future could be. Shoppers open up the Amazon Go app, scan this on the way in, and pick up whatever they want in-store (which is tracked by sensors and cameras in the ceiling). These items are added to the cart in your app in real-time thanks to large, camera-friendly codes on every item, which help the cameras understand which item has been grabbed. The computers then combine that information with data from weight sensors installed in every shelf. Once you are done, you tap out, and are charged for the items you took. The customer gets a seamless shopping experience, and in return Amazon have access to a new source of customer data, such as time spent in store, items purchased, and most-visited aisles.

Amazon Go is definitely an exciting innovation, and extends the possibilities for western payment methods in the future. This sort of QR code technology is the most advanced method of payment in retail today, as unlike mobile wallets, you don’t have to scan your items at the end, eliminating the need for cashiers. However, QR code-based mobile payment technologies such as this will not be the future of NFC payment solutions in the US. Instead, consumers and retailers will rely on either touching or swiping their mobile wallets on terminals.

The lack of uptake for mobile payments through QR codes can be tied to the fact that, like Europe with contactless cards, Americans have been exposed to and are used to mobile wallet payments, and this method of payment is becoming entrenched. This is in stark contrast to the country that is the clear leader when it comes to payment technology advancements: China.

China’s cashless society

If you want to know where the adoption of cutting-edge payment technology is taking place, look no further than China. Here, mobile payments were nearly 50 times greater than those in the US in 2016, and the majority of these are QR-based.

In 2016, Chinese third-party mobile payments stood at USD$5.5tn (£3.9tn) – more than triple what it was in 2015 – and it is estimated that 76% of the Chinese population will pay via their smartphones by 2021. This is especially impressive given that China’s urban population only overtook its rural population in 2012, and the rural community still makes up 43% of the population (the UK’s rural population is 17% and America’s is 18%).

One reason uptake of mobile payment solutions that use QR codes has been so high in China, is that the country never embraced card or mobile wallet payments. Unlike the UK and US, this means customers don’t have the same attachment to these payment methods, instead going from a market that used predominantly cash, to the leader in payment solutions. What’s more, Alipay and WeChat Pay, who run a duopoly over the market in China, are incentivising retailers and customers alike, to speed up the rate of adoption.

Will the future be cashless?

It is hard to say whether Europe and the US will ever reach this level of saturation for mobile payments. Given Amazon’s dominance of the retail market in the western world, it wouldn’t be surprising to see more Amazon Go stores pop up on our high streets in the next few years. However, given Amazon’s dominance of e-commerce, and the relatively small investment it is making in brick and mortar stores, it is unlikely we’ll have an Amazon Go on every street corner. It is more likely that Amazon will strike partnerships to implement the technology in other stores, helping them add to their hordes of consumer data, and offer these customers relevant online offers.

Although the extent to which mobile, QR-based payments will be adopted outside China is in question, these type of systems will be see uptake to a certain level. Alipay and WeChat Pay will incentivise surrounding markets such as Hong Kong and South Korea, while tech-savvy millennials, who are increasingly living their lives through their smartphones, could drive adoption elsewhere.

Smart suits & retinal scanners – the future of payment

The most exciting developments over the next few years will take place in China and South Korea (which is benefiting from proximity to the base of Alipay and WeChat Pay), while Europe and the US get to grips with technology that is already the norm in the East.

Among these developments, we could see the moving of QR scanners to wearable devices, leading the production of brands such as Samsung’s ‘The Human Fit. This has NFC sensors build into the suit, and is currently being used as a quick way to exchange business details. However, it is not a stretch to see Alipay and WeChat Pay beginning to work with Samsung to make payment via clothing the next stage of this technology.

With all of these technological changes, there is also a space in the market for payment authentication technology to develop. Wrist bands that monitor a person’s heartbeat and use this to authenticate ownership and validate NFC purchases, are just one way this space could move forward, while face or retinal scanners built into smart devices are another. With the hub of innovation in this space being in China and South Korea, these designs will only widen the already startling disparity between this region and the rest of the world in relation to payment technology.