How far are we from a cashless society?
Financial services director Mary McHale takes us through how technology is changing our payment options.
Australia is rapidly moving towards a cashless, cardless society, as more digital payment applications and services are introduced and used by both consumers and businesses. With so many different ways to pay, will we even need a wallet in the future?
Recently, real-time payments and open banking have created more options when we shop, transfer money to each other and manage our accounts. Our phones also continue to hold centre stage when it comes to convenience and simple, seamless payment processes.
As both traditional and fintech companies embrace new technology, here is a look at some of the major developments that could soon influence how payments are made.
Cashless payment options
Electronic payments are already increasing at around 11% per year globally, with double-digit growth likely to continue through 2020.
This is partly fuelled by the growth in flexible payment options like SplitPay, faster payments services like OSKO by BPAY, digital wallets like Apple Pay and buy now, pay later platforms such as Afterpay. All of these services have emerged in recent years to make it easier, faster and more convenient to make purchases and to send or receive money.
While adoption varies between countries, emerging markets are catching up, with the Cap Gemini World Payments Report 2018 noting "non-cash transactions are estimated to accelerate at a compound annual growth rate (CAGR) of 12.7% globally with emerging markets growing at 21.6 per cent from 2016-2021".
Paying in the moment
Real-time payments, in which money is transferred between bank accounts in less than a minute, are now available in Australia via the New Payments Platform (NPP). The initial benefits include the ability to pay anyone at any time, from anywhere you want, whether it is for person-to-person (P2P) payments, funds disbursements or merchant settlements.
This is a giant step forward in removing friction and adding flexibility to payments because it means you don't have to wait for a cheque in the mail or for the bank to open on Monday morning.
Advances in technology, smart devices, booming online retail and e-commerce, and the growing number of P2P payment options available on social platforms are also contributors.
In Asia-Pacific, Alipay, WeChat Pay and a host of other providers have evolved mobile wallets into full-scale lifestyle platforms.
These can provide single access points to services including P2P payments, cross-border payments, bill pay, transportation and restaurant booking, medical appointments and travel arrangements – all aimed at making our lives more convenient.
Closer to home, Australian banks have also evolved their infrastructure to support the industry-wide adoption of the NPP and are working on the continued development of the platform to ensure that it continues to support new and innovative payments in the future.
This is good news for consumers and merchants alike. With real-time payments solutions enabling a new wave of services, it's likely that businesses will increasingly use them in a bid to build and maintain loyalty from customers and employees looking for simple, fast, secure and convenient services.
One immediate benefit to real-time payments is that late or delayed payments will soon become a thing of the past. Imagine being able to pay your bills at the last minute without risking penalties for late payments.
The ability to transfer and receive funds almost immediately also gives you more financial management options. A reduced dependence on cash will create more financially-savvy consumers, as technology gives you the opportunity to see all your transactions in the click of a button (or a tap on your smartphone screen). It can also lead to smarter businesses, with the chance to improve management of day-to-day operations thanks to better cash management.
Growing demand and interconnection
In 2018, just 12% of Australian people were using real-time payment solutions. This is expected to increase to 28% in 2019 and to almost 70% by 2023, which means real-time payment solutions will reach more than 3 billion transactions per year by 2023.
But before that can happen, businesses need to have the technology to support all of these real-time payments. This has led to an increased demand for technology that supports private, secure exchanges of data between companies – also known as interconnection.
Financial service providers are among the most eager to adopt this technology, with the Equinix Global Interconnection Index Volume 2 market study predicting they will increase direct interconnection bandwidth by close to 50% from 2017 to 2021. This shows that banks and other financial providers are paying close attention to our increasing use of real-time payments.
Opening up options
As these innovations become more widely adopted, regulatory changes and technological advances are also expected to continue to revolutionise banking for both businesses and consumers.
Through the introduction of open banking, regulators are seeking to drive increased competition and innovation by making customer banking data available to third parties. This includes financial service providers that will challenge the traditional providers for customers' loyalty with new and innovative financial products and services.
These moves will result in having greater control over your financial data – including how it is shared – so that you can find the best product or service for your needs.
Open banking can give you a way to log in to one website or app that shows all of your current accounts, savings and credit cards in one place. And you could see all this information regardless of who you bank with or which bank has issued your credit card, mortgage or other loans.
This access to shared data on a single platform will also give you a complete picture of your account balances and payments due. The opportunity for smarter financial management, as well as more transparent pricing are two of the benefits of open banking.
While the timeframes for industry-wide adoption of open banking and the account data exchange and connectivity between the banks and third parties is at varying stages, the overall movement away from cash and credit is coming fast and the good news is that the result is the same: the future of payments is instant, open and everywhere.
Mary McHale is the Financial Services Director for Equinix Asia-Pacific, with more than 25 years of experience in the banking and financial services sector including leadership roles at Citi, JP Morgan Chase and Bank of America. In her role, Mary coordinates and builds on Equinix's existing community of banks, payment providers, payment gateways, card associations, and mobile wallet providers across the region. Mary also works to create new relationships with other key players in the ecosystem including fintech start-ups, regulators and professional organisations focused on advancing the opportunities for companies to accelerate their business potential.
Disclaimer: The views and opinions expressed in this article (which may be subject to change without notice) are solely those of the author and do not necessarily reflect those of Finder and its employees. The information contained in this article is not intended to be and does not constitute financial advice, investment advice, trading advice or any other advice or recommendation of any sort. Neither the author nor Finder have taken into account your personal circumstances. You should seek professional advice before making any further decisions based on this information.
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