Payments have changed over time. Heading into the future we are met by ever increasing technological advances in cashless payments that are making our wallets lighter, our payments more secure and providing us with more emotive digital experiences. These changes are not taking place in isolation, with the transformation in payments technology impacting many aspects of our day to day lives. How will these digital advances change our daily lives?
Around five years ago, on a trip to Kenya, like any tourist on safari I was lucky enough to meet local people and learn more about the Masai culture and way of life. Looking to purchase a rungu – a symbolic wooden club – I started a conversation with the chieftain about a possible sale. He lightly scratched onto his arm the price he was looking for and, in turn, I scratched a number onto mine to agree what I might pay. Yet when it came to moving the money, we each took out our smartphones and used MPASA – the digital point-to-point payment platform. It was a moment for me that encapsulated a remarkable leap from long-held traditions for setting up the transaction, to its very 21st century execution.
Development of Digital Payments
Closer to home, I’ve witnessed the more linear progression of digital payments and been involved in some of the developments. One of most notable is the emergence of contactless cards. Back in 2000, I was part of a large team working on the Prestige Public Finance Initiative for Transport for London (TfL) with the primary objective of establishing and ringfencing a secure ticketing infrastructure across the London Underground and into the city’s bus network.
With the technical and financial frameworks and systems in place, TfL passengers could then use a completely new ticketing medium – a contactless card to act as their virtual wallet and record of entry and exit onto the transport network.
This was revolutionary for western cities, preceded in size only by the Octopus card in Hong Kong. And it was a huge feat of technological engineering, with delivery and cultural challenges to address in designing, developing and delivering the necessary infrastructure. In 2003, when the Oyster card was launched, it was adopted seamlessly and – in addition to significant revenue protection for TfL – generated immeasurable confidence in and acceptance of a new technology.
A Contactless Society
In the years since, the Oyster card has evolved as the gateway to a plethora of other devices and platforms. Even the physical entity of a card is beginning to disappear in favor of digital formats. According to UK Finance, contactless payments now account for 49 per cent of all credit card and 65 per cent of all debit card transactions. This represents an increase of 102.3 per cent from May 2020 and 52.8 per cent more than in May 2019.1 What’s been critical to this evolution has been users’ trust in systems being safe, secure and accurate.
In the case of London Underground, it’s fair to say that a lot of us would now struggle to identify the cost of an individual journey because we’re confident that we’ll have a capped fare and value for money. That level of trust is something that any financial institution seeks to engender in its customers.
Parallel to the integration of digital platforms like Oyster, established banks have had to reverse-engineer the easy, seamless, mobile digital experiences that customers have come to expect. This has, of course, been fueled by disrupters – the young bucks of the banking world such as Starling, Monzo and Revolut, who landed as agile digital natives to reinvent the banking experience: no high-street presence, fast and easy ways to open accounts, and convenient multichannel services. This is far from a niche product: Starling now has 2.2m active accounts, with Monzo at nearly 5m2.
This was all done while pushing the boundaries of product and user experience design, with friendly graphs, spending breakdowns, chats and useful offers and alerts about what we as consumers might need next. In this way, the banking customer relationship is fast becoming a ‘pick and mix’ service tailored to individual needs, reflecting what has felt like a power shift from banks to consumers via digital.
A Digital Future
Where before online banking might have been for the young and adventurous, now it’s ubiquitous as part of our digital society. The ONS reported in 2019 that 73% of consumers now bank online – this figure is 90% for those under 34 years old3. These numbers will only have grown throughout the coronavirus pandemic. And as we move to second and third generation digital banking, we will see ever more sophistication and richer engagement with more and more consumers.
On the horizon is the as-yet untapped potential of open banking, whereby consumers’ choice of products and services will no longer be restricted to their specific bank. While a number of traditional High Street banks have started to experiment and add value through open banking, the industry is only at the start of this journey.
Yet what is clear even now is that as banks blend ever more consumer choice via digital platforms, their relationship with the customer will change significantly. As individuals, with seamless user access to a mix of services and brands that we ourselves curate, we will have ever more choice to shape our own personal digital banking services ecosystems. This will mean the balance of power moving increasingly to the customer as the revolution in digital banking starts to gather pace.