In Search of the Right Strategy in the Digital World of Payments

In today's fast-paced world, consumers are looking for convenience and simplicity in all aspects of their lives, preferably in real time. Payments are no exception. Retailers, on the other hand, are under increasing cost pressure and expect low fees, not least because few are aware that there are costs associated with cash management. The demand for a seamless payment experience has put pressure on payment service providers to develop new and innovative payment methods. In most cases, however, this has come at the cost of increased complexity and expense, making it difficult for them to deliver the fee reductions that merchants expect. Ultimately, the developments that best resolve this paradox are likely to prevail. All the studies on payment behavior and, more tellingly, on payment preferences in a variety of contexts paint a clear picture: simple, fast, and secure payments are becoming increasingly important to consumers, banks, and merchants.

However, despite all the optimism, it is often underestimated that while technological innovation is accelerating, consumers are still clinging to old habits. Reaching critical mass therefore depends on a number of factors that are not always directly controllable. A typical example is contactless payment, which began to take off in many European countries during the COVID-19 pandemic. The external circumstances meant that even people who had no liking for cards immediately recognized the simplicity and convenience of this payment method. Although the trend has leveled off somewhat, we can assume that it is sustainable. Contactless payment, whether by card, mobile phone, or smartwatch, has become the standard. A clear sign of this is the fact that this trend can now be observed across all generations, i.e., by no means only among digital natives. Only the medium used still depends on the generation – wearables are currently much more common among the trendsetters of the younger generation.

However, the further away from established patterns of behavior and the more futuristic the scenario, the greater the differences in acceptance between age groups or different cultural backgrounds. In some cultures, for example, the idea of leaving a store without visibly paying causes discomfort and is almost perceived as stealing. Sharing a bill among friends, as has become common in Switzerland with TWINT, is still seen as breaking a social norm in southern Europe.

More and more customer groups prefer to pay digitally. However, some people – especially the elderly – are not prepared to give up cash. The trend varies greatly from country to country: in Scandinavia, the proportion of cash fans is less than 5%, and legislators and the central bank have already had to take measures to ensure the supply of cash. Discussions in the media show that the “battle of faith" is still in full swing – for example, when festival organizers insist on allowing only cash. We also refer to this development as the “digital divide”: the gap between those who have enthusiastically or out of necessity embraced the digitalization of the world and those who, for various reasons, do not want to or cannot embrace this development. In both cases, this development must not lead to the exclusion of certain groups. The payment industry also has a social responsibility in this regard.

The biggest challenge is putting the necessary technologies at the service of a positive customer experience: Authentication solutions must be easy and intuitive to use, while the technology should be as invisible as possible. The most promising approach is the intelligent use of biometrics. From fingerprints to voice and facial recognition, what seemed futuristic just a few years ago is now standard practice. Well-integrated multi-factor authentication processes can also help to serve user groups that have been excluded or even disadvantaged by digitalization by making the cumbersome entry of 16-digit card numbers and the memorization and entry of PINs a thing of the past.

Digitization has not stopped on the acceptance side either: Solutions such as “Tap on Mobile” turn Android smartphones into mobile terminals for card payments with PIN entry for higher amounts, including a digital receipt with a QR code. Development is well underway for further use for payments in cars, hotels, self-service kiosks, and ticket machines.