I was very interested in this report from The Demand Institute/Nielsen on how increasing smartphone and internet access will drive the shift towards cashless payments – generating an extra $10 trillion in consumer spending globally.
The report also identifies three broad groups fighting to deliver this cashless future: “Across the planet, traditional banks and credit card networks will compete directly with retailers, telecom providers, tech giants, social-media upstarts, and scores of regional, often government-backed initiatives…”
It also indicates how cashless payments could lead to a convergence of all aspects of the consumer experience – including advertising, social media and entertainment.
The End of Cold, Hard Cash and the Global Shift Toward Cashless Consumer Payments: https://t.co/J48PphxM2L
— Conf Board Reports (@CBoC_Reports) August 18, 2016
Rise of cashless payments to spur extra $10 trillion in consumer spend
Driven by rise in access to smartphones and the internet in developing markets
The shift towards cashless payments, driven by increasing access to smartphones and the internet, will generate an additional $10 trillion in consumer spending globally over the next decade, according to The Demand Institute, a non-profit think-tank operated by Nielsen and The Conference Board.
The report projects that 1.2 billion more people will gain internet access by 2020 which, together with the increase in smartphone penetration and new digital payment systems, will enable two billion ‘unbanked’ consumers to participate in the connected economy and basic financial services for the first time.
“What happens when a consumer accesses the internet is similar to what happens when a baby starts to walk – a whole world of exploration opens up including new shopping patterns,” said Louise Keely, president of The Demand Institute. “However, alongside the long-underserved developing economies, the proliferation of cashless payment services will also benefit those in advanced markets as new competitors and business models dive in to meet the needs of every imaginable consumer use-case.”
With trillions of dollars at stake, the report identifies three broad groups fighting to deliver this cashless future:
- Big retail banks and credit card companies rooted in traditional credit, debit, and prepaid cards, aka “Core Providers”
- Retailers that handle their own payments and closed-loop payment systems, such as the Oyster travelcard, aka “Adjacent Participants”
- New Entrants – potential disruptors ranging from Apple and Google to mobile-app start-ups, bitcoin services and telecom giants across Asia, Africa, and Latin America.
“Across the planet, traditional banks and credit card networks will compete directly with retailers, telecom providers, tech giants, social-media upstarts, and scores of regional, often government-backed initiatives,” said Keely, “However, whichever segment prevails, and it’s too early to say, the payments industry will change in three fundamental ways.”
Firstly, the number of transactions will rise while average transaction size will fall due to billions of new customers and current customers using them for a greater proportion of purchasing, often smaller items.
Secondly, indirect revenue opportunities will increase as cashless payments become more integrated into the rest of consumer’s financial and digital lives enabling more personalised and relevant products to be offered. Thirdly, the revenue earned per transaction by payment providers will fall due to more competition and cellular network transactions being cheaper to process than traditional payments.
The report’s other key findings include:
- Cashless payments will also be driven by security concerns overs cash transactions which have reached a tipping point in favour of cashless payments for billions of consumers across emerging and middle-income economies.
- The addition of payment systems to social-media services like Facebook’s Messenger and Tencent’s WeChat in China points to the ultimate holy grail for consumers and businesses: the convergence of all aspects of the consumer experience – including marketing, advertising, shopping, social media, entertainment, and financial services – onto a single, seamless platform.
- Outside the payments industry, retailers and other consumer-facing businesses will also face significant disruption. Their customers will increasingly seek connection between cashless payments and the shopping and purchase process across all channels, allowing them to personalise and diversify their shopping patterns. Brands can act now to provide consumer access across devices and payment types, allowing movement between online and offline shopping and connection across borders.
Keely concludes: “Businesses need to pay attention to the payment revolution taking place around the world in countries such as India, Nigeria and Bangladesh, as the solutions being developed to solve local problems could turn out to have a big impact here.”
The End of Cold, Hard Cash and the Global Shift toward Cashless Consumer Payments report is available here.