The magnetic strip found on the back of credit, debit, frequent flyer, loyalty shopping programs, and just about every other plastic card in a wallet today is technology developed by IBM in about the 1950’s. The problem with this technology is it relatively easy for the bad guys to replicate and the cost of banking fraud and identity theft has been increasing as the volume of electronic payments increases. According to the World Payments Report 2011, the number and amount of global card fraud has been increasing with the amount lost to card fraud totally €4.9 billion in 2009.
Enter the smart card, the next generation of technology, a computer chip inserted into the card and the user enters a security code at the time of purchase. This technology is harder to duplicate and considered more secure. In the UK alone, this technology is credited with reducing fraud by 77% since 2004 when the technology was introduced. But even before smart card technology is widely implemented, new options are being introduced to improve the ease and security of paying electronically including mobile payments, contactless cards, and biometric payment processing.
Mobile payments focus around using a mobile phone as a replacement for a wallet or plastic card. In countries without smart phone technologies this can be as simple as a text message sent to initiate a payment. In Kenya, Safaricom, the largest mobile carrier provides a mobile payment service, M-PESA, and by 2010 was already used by over 23% of the population. The technology has since spread to over 45 other countries through partnerships with Vodafone, Western Union and other organisations. Transfers can be to a private individual or a business or used for a convenience purchase- think parking meters or vending machines.
In countries where smart phones are widely used- alternative payments methods include those based on QR (Quick Response) Codes, which can be scanned much like bar codes, or using a mobile phone or payment alternative using Near Field Communication (NFC) technology to allow a phone in near proximity of a terminal or other mobile phone to complete an electronic payment. Google Wallet, Isis Mobile Payments, or Orange Quick Tap, and many others are examples of NFC technology using a mobile phone. See previous Trend Alert – M-Pay Lift Off?
Contactless cards allow small purchases, usually $25 USD or less to be completed by waving the debit or credit card over a terminal at the point of purchase. No security code or signature is required. The technology is similar to NFC used for mobile payments and is based on RFID (Radio Frequency Identification) technology.
Another option is biometric payment processing; where a fingerprint, retina scan, palm print or other biometric information is used to complete a transaction usually in combination with a plastic card containing a smart chip.
Electronic payments offer consumers convenience, provide revenue to banks, credit card companies, and payment processors, and offer merchants improved cash flow and convenience. However in comparison to cash, electronic payments create security and fraud risks and enable transactions to be tracked and reported.
Payments completed electronically enable easier tracking of transactions and record keeping for both merchants and consumers. As it becomes easier and more convenient to pay for items electronically cash becomes less of a necessity.
Eliminating cash payments has several advantages as well. The printing and handling of money is expensive. Cash payments can be anonymous and hard to track enabling drug dealing, tax evasion and other criminal activity to be conducted in secret. Many governments favour reducing cash transactions in order to better monitor and understand the activities of their citizens. The Swedish government has been discussing the elimination of cash since 2010.
Privacy, security, and convenience are all important factors in the adoption of electronic payment technology. New technologies which balance and address these factors may enable the elimination of cash.
By Elizabeth Rudd
Elizabeth has a strong background assisting clients to navigate the often conflicting signals in their external environments and find innovative opportunities . As a strategic foresight consultant at FutureNous she has assisted organisation to explore the future to find new products, alter their business model, find expansion opportunities and build their resilience. Her experience spans many industries including technology, mining, utilities, healthcare, non-profits, government, media and telecommunications, and many others. Elizabeth also works with Shaping Tomorrow writing Trend Alerts and more in-depth reports exploring the impact of long term (macro) trends.