The end of cash?

It was the best of times, it was the worst of times… this quote from Charles Dick­ens could sum up the pay­ments mar­ket in 2015.

On one hand, con­sumers appear to be warm­ing to alter­na­tive forms of pay­ment with wave-and-pay and mobile wal­let ser­vices start­ing to gain ground in the UK. On the oth­er, some of the emerg­ing names in the sec­tor – notably Weve and Moni­tise – have skid­ded in the rush to become the de fac­to stan­dard for mobile pay­ments. Pay­Pal has part­ed com­pa­ny with eBay and Visa Europe looks set to be swal­lowed up by Visa, its Amer­i­can sis­ter com­pa­ny, which could ush­er in a peri­od of uncer­tain­ty if some of the banks that own the Euro­pean com­pa­ny attempt to stymie a deal.

All of which paints a tough back­drop for any com­pa­ny hop­ing to tap into the future world of pay­ments. Ques­tions about secu­ri­ty, con­sumer behav­iour and the pace of change at the tech­ni­cal lev­el are sur­mount­able, but pick­ing the right horse looks more dif­fi­cult than it did a year ago. With Apple and Sam­sung set to join the long list of com­pa­nies offer­ing pay­ment sys­tems, plac­ing the right bet may nev­er be hard­er.

The evi­dence is mount­ing that con­sumers are vot­ing with their feet when it comes to tra­di­tion­al pay­ment meth­ods

Deloitte has pre­dict­ed that 2015 will be a turn­ing point for near-field com­mu­ni­ca­tions (NFC) tech­nol­o­gy, some­thing of a white ele­phant in the mobile phone indus­try. NFC, the tech­nol­o­gy used for Oys­ter cards on London’s under­ground and bus­es, has been embed­ded in smart­phones for years, but it was miles ahead of con­sumer behav­iour. Only 2.5 mil­lion peo­ple with a NFC-enabled phone used it to make a pay­ment in 2014. Deloitte believes the num­ber will boom to 30 mil­lion a month this year.

Add to this the prospect of wear­able tech­nol­o­gy such as the Apple Watch being used to wrist-swipe pay­ments at the till and the pic­ture gets even mud­di­er.

Nev­er­the­less, 2015 is still shap­ing up to be a defin­ing year for the pay­ments indus­try as con­sumers and busi­ness­es not only seek more flex­i­bil­i­ty, but also more con­trol in terms of secu­ri­ty and trans­paren­cy. Sta­tis­tics may mis­lead, but the evi­dence is mount­ing that con­sumers are vot­ing with their feet when it comes to tra­di­tion­al pay­ment meth­ods.

More than two mil­lion Danes, for exam­ple, use an appli­ca­tion called Mobile Pay, a Danske Bank app, that enables peer-to-peer mon­ey trans­fers and mobile pur­chas­es. This is more than a third of the pop­u­la­tion, prompt­ing to the claim that Den­mark is lead­ing the way to becom­ing a cash­less soci­ety.

That presents an oppor­tu­ni­ty, as well as a chal­lenge, for any com­pa­ny. Lee Perkins, man­ag­ing direc­tor of Sage UK, says: “The world of busi­ness has learnt a huge amount from the con­sumer pay­ments land­scape. Pio­neers such as Apple Pay have accel­er­at­ed the pace for the pay­ments sec­tor and agile busi­ness­es will soon fol­low suit.”

Sage is respon­si­ble for pay­ing more than one in four peo­ple in the UK, but is hav­ing to piv­ot its account­ing soft­ware into the cloud to keep up with inno­va­tions in the con­sumer mar­ket. If a small-busi­ness own­er can use an iPhone to make per­son­al pay­ments or buy items, it is a nat­ur­al next step to want to pay employ­ees and sup­pli­ers using a sim­i­lar­ly con­ve­nient method.

Pay­ment tech­nol­o­gy should open up huge oppor­tu­ni­ties for small busi­ness­es, but sig­nif­i­cant chal­lenges remain. Simon Black, chief exec­u­tive of PPRO Group, says pay­ment sys­tems and tech­nol­o­gy can prove to be a hin­drance to exports despite the rel­a­tive ease with which a com­pa­ny can set up a web­site to sell their goods. He notes that half of all online trans­ac­tions are paid for using iDE­AL, not Visa or Pay­Pal, mean­ing many alter­na­tive pay­ment types are essen­tial for mer­chants to grow con­ver­sion rates.

“Look­ing ahead, the plas­tic for­mat of a pay­ment card will ulti­mate­ly be replaced by mobile devices, both smart­phones and smart­watch­es. While that future sce­nario is still some years away, what we will see over the next 12 months is the ear­ly adop­tion of using smart­phones to pay, in par­tic­u­lar through the launch of Apple Pay,” Mr Black says.

Yet while Apple Pay will undoubt­ed­ly dom­i­nate the head­lines, more hum­drum con­cerns about how the pay­ments indus­try is evolv­ing are like­ly to be just as sig­nif­i­cant. For small busi­ness­es, just man­ag­ing their pay­ments from an increas­ing num­ber of plat­forms and sources can cause a huge headache.

URICA chief exec­u­tive Lind­say Whitelaw com­ments: “When choos­ing a pay­ment provider there are cer­tain ques­tions small and medi­um-sized enter­pris­es need to con­sid­er. Such as what is the con­tract term? How quick­ly will I receive funds from my sales? Is the method of pay­ment safe, secure and sta­ble? What is the ‘real’ month­ly cost? Are there any hid­den fees or addi­tion­al ser­vices that require me to pay to third-par­ty providers, such as acquir­ing banks, secu­ri­ty cer­tifi­cate issuers, pay­ment proces­sors?”

That might sound like a huge check­list and it is. URICA, a gov­ern­ment-backed ear­ly-pay­ments plat­form, has been set up to ensure sup­pli­ers get paid after invoic­ing to avoid a back­log of much-need­ed cash welling up in the sys­tem. It is used by the likes of Nor­ton Motor­cy­cles to keep mon­ey flow­ing through the sys­tem, some­thing even more impor­tant at a time when the num­ber of ways to get paid expands every day.

Pay­ments is one of the most rapid­ly evolv­ing sec­tors in the world  and, in a glob­al econ­o­my, choos­ing the right approach to pay­ments infra­struc­ture could prove to be a mat­ter of life or death for British busi­ness­es. You only have to look at the pay­ments com­pa­nies them­selves to see that.