A lack of enthusiasm is slowing invisible payments' march
Invisible payments have already had a massive impact on the physical and online retail experience and could have the potential to eradicate cash and payment cards from the payment journey.
Amazon Go even went as far as removing point of sale systems from its payment processes to provide consumers with, what they consider to be an enhanced in-store experience.
Consumers have demanded frictionless checkout experiences. Whether they are getting a sandwich at the neighborhood cafe or buying trousers they saw on Instagram, consumers expect to complete purchases almost with the wave of a magic wand. Online stores are working to make checkout experiences as frictionless as possible — which makes sense, considering that U.K. e-commerce sites suffer from cart abandonment rates of 76% — by implementing one-click checkouts using PayPal and other alternative payment methods such as Apple Pay.
While the impact of invisible payments is expected to be significant — predictions are they will account for $78 billion in annual transactions by 2022 — there are some indications that the road there is going to be bumpy for the U.K. Not all consumers have been enthusiastic about invisible payments. In addition to customer demand for invisible payments, the diversity of products, prices, and consumer payment preferences both locally and internationally make it quite complicated on the back end.
For invisible payments to gain mass consumer adoption, there are several cultural and logistical barriers that retailers and the payment industry must consider first.
Implementing invisible payments for high-value transactions will be a significant barrier. There are many, many successful use cases for low-value invisible transactions; Uber was adopted so widely and so rapidly thanks, in large part, to the user’s payment experience. All these ride-sharing companies mostly handle relatively low-value transactions, with consumers welcoming the convenience of this frictionless payment process.
But what happens when the transaction is over £100?
Buying something for £100 or more without authentication is an uncomfortable thought for many consumers. It can be argued that customers expect — indeed want — a level of friction when making certain purchases. Businesses with big-ticket items will still need to provide consumers with an option to use more traditional payment journeys for the foreseeable future.
Despite a seemingly ubiquitous shift to digital payment methods, cash is not disappearing anytime soon. Consumers in many booming e-commerce markets still have a strong preference for or reliance upon cash-based payment methods — Mexico, Brazil, and Japan are a few examples. In the U.K., some demographics prefer cash, particularly the elderly and underbanked. It is estimated that despite the introduction of new technology and different payment methods, cash will still account for nearly 10% of U.K. transactions in 2028.
Retailers can’t afford to miss out on sales from such a large number of consumers, so they need to introduce invisible payments gradually and, where possible, give consumers options. If they don’t, they run the risk of losing business to the competition.
Recent regulations have correlated with consumers becoming increasingly aware of the need to protect their data and monitor for fraud. Strong customer authentication (SCA), enforced under the second Payment Services Directive, states that a customer must verify their identity before payment information can be exchanged between a financial institution and a third-party provider. Put in place to prevent fraudulent transactions, it simply means that SCA requires consumers to authenticate payments by entering a PIN or using biometric data like a thumbprint. While transaction value will likely influence the level of authentication required under SCA, the need for authentication is an inherent barrier to a frictionless or invisible payment. It remains to be seen how invisible payments and SCA will coexist.