Nothing for Money?...
It’s been longer than I care to mention since Sting was warbling that he wanted his MTV over the top of a Dire Straits track. The lyrics of that particular dad rock classic definitely haven’t aged well but , even aside from any views on political correctness, it seems that the concept of buying things for money is also on its way to becoming outdated
The latest data from the BRC shows that, for the first time in the UK, spend on credit and charge cards exceeded that from cash transactions. In fact cash now only accounts for £1 in £5 spent on the high street, totalling some £78bn. That compares to £82bn on credit cards and £216bn on debit cards.
When NFC first hit the mobile market, the industry gag was that what it really stood for was Nobody F*cking Cares. Whilst the technological capability has been around for some time, consumers it seems were much further behind the adoption curve. However, as we approach 2020, contactless payments both through card and mobile seems to be finally taking off.
The Western World has been relatively slow to adopt mobile wallet services compared to Asian economies. The latest data from GATE suggests that Chinese consumers still account for 56% of mobile wallet users and that those in India account for a further 14%. Of the estimated 2.07 billion of us who have used a mobile payment service in the past year, only 5% were in Western Europe. There are signs though that we’re beginning to catch up. Emarketer estimate that 7.2m people used (c. 13%) used a mobile payment service in 2019 and they forecast a further 1.1m will join the mobile payments revolution this year.
Payments Cards and Mobiles estimate c. 43% iPhone users have activated Apple Pay with adoption on public transportation driving higher usage in countries outside of the US (47% vs 24% in the US). Data from Stripe shows a similar difference in adoption when shopping online too with 27% nominating Apple Pay as their preferred payments method compared to 14% American shoppers. Our love for our phones as a shopping device does, it seems, know no bounds.
This shift in consumer habits has some fundamental implications for brands. Firstly, for many retailers it leads to a much higher cost per transaction. There are of course the direct costs with card transactions costing retailers c.5.85p each time we flash our contactless card or our smartphone. However, there are also the indirect costs hidden in the supply chain; our increasing familiarity not only with credit models but also buy now, pay later services such as Klarna or LayBuy is also storing up a host of hidden costs as we become used to ‘over-ordering’ and returning unwanted items. NO wonder the recent survey by Brightpearl found that over half of UK fashion retailers would consider banning serial returners!
Secondly, the decline in the volume of cash withdrawals means that what was once a widely available free service is now becoming a premium service once again. Nearly 3,000 bank branches have disappeared in the UK since 2015 and a Which? Survey found that some 500 ATM’s disappeared from our High Streets each month during 2018. In parallel with ATM closures, private ATM operators are also starting to re-introduce transaction fees for shoppers to get their hands on their Money. Which? Found that at least 1,700 machines in the UK charged a fee of 95p or more per transaction in the first quarter of this year with some 1,250 previously free ATM’s converted to paid machines in March alone. With the upper limit on both contactless and mobile payments increasing, it’s no wonder many of us simply choose to operate cash-free for so many of our transactions.
Finally, our changing habits are inevitably leading to seismic shifts in the whole financial services industry. Regulators in particular seems to be unsure which way to turn. If it looks like a bank, smells like a bank and acts like a bank, is it actually a bank? Buoyed by the phenomenal success of services like WeChat in China, Whatsapp are rumoured to be readying their launch in India and sister brand Facebook have already announced the launch of their crypto-currency , Libra . Whilst these services seem a long way away from our day to day shopping experience, the reality is that our understanding of what is/ isn’t a regulated financial institution is becoming increasingly blurred, as Tom Goodwin recently pointed out
However, whilst these shifting sands undoubtedly create challenges for retailers, they also open up new opportunities. The average transaction value on card transactions is always much higher than with cash (£31.71 vs £10 according to BRC).
Whilst traditionally this has been due to the type of products bought through each method, there is also evidence to show we are less price sensitive when using ‘real’ money. Richard Shotton covered this excellently in The Choice Factory where, in his experiment at least, 87% of those paying with cash knew how much they’d spent compared to just 33% using contactless payments. Provided card operators are not allowed to hoist exorbitant fees on retailers, reducing the friction in paying for goods might actually be one of the few potential rays of sunshine amidst a gloomy outlook for Britain’s High Streets.