Making Invisible Payments More Than A Buzzword

From cash and coins to mobile wallets to wearables … to invisible payments.

About 90 percent of purchases are still being made in-store, but the payment modalities are changing — and rapidly.

To that end, said Matt Good, senior vice president and general manager of Elan Advisory Services, in an interview with PYMNTS, fledgling ways to pay — where wearables are wielded as payment instruments, and where mobile wallets replace leather ones — will soon become everyday methods.

The journey toward frictionless payments has raised the bar for merchants and their financial institutions (FIs) to be ready for the shift.

Frictionless Payments

As Good told PYMNTS, frictionless payments can be defined as payment experiences that are seamless because they remove pain points such as handling cash, entering PINs or wielding physical cards.

“I’m referring to frictionless payments as anything that doesn’t involve the actual plastic,” he said. “So you’re talking about the ability to pay with your mobile phone or device and have it actually be contactless. We’re also referring to voice transactions when we talk about frictionless.”

And while he said the United States has been relatively slower than other countries to embrace contactless payments, the pace of adoption has picked up.

The acceleration is due, at least in part, to the fact that more consumers are demanding contactless payments as their own individual comfort level increases, said Good. One other headwind to contactless adoption and deployment stems from what might be thought of as the provider side of the equation.

Good said that for merchants, processors and FIs, the investment in terms of technology and time is significant.

“Projections show that less than half of all POS merchant terminals in the U.S. are going to be able to accept contactless transactions by the end of 2020,” he noted. “So there is a lot of investment that has to be done.”

Yet those same merchants will find that, as Good noted, more than 30 million consumers will look to use mobile checkout apps to scan their items — right where they are — and avoid the checkout line altogether.

Making the necessary investments is especially challenging for smaller community banks and credit unions (CUs), Good maintained.

“Payments may not necessarily be their niche,” he explained of these smaller FIs. “They have a much-needed niche in the economy where they work to provide banking services to local customers, but they may not necessarily know what to invest in, or what is needed [in terms of hardware and software] to get their own business customers up to speed” on frictionless payments.

The most streamlined path for these FIs is to partner with a processor, such as Elan, which specializes in helping FIs offer mobile wallets and wearables without shouldering the associated costs of such initiatives.

Wallets: Merchant-Agnostic and Merchant-Specific

As Good noted, among frictionless payment options, mobile wallets are gaining steam, as the global mobile payments market is projected to reach $3.4 billion in 2022, representing a 33 percent compound annual growth rate (CAGR) as measured from 2016.

And in the continuing debate over whether individuals will embrace merchant-agnostic versus merchant-specific offerings, Good remarked that a shift may be happening in the industry.

He noted that “the main differentiator for merchant-specific” wallets has typically been the rewards offered to end consumers. He cited the example of Starbucks, whose mobile payment app rewards users with discounts and free drinks at the point of sale.

For a while, Starbucks had been the industry leader — but now Apple Pay, a merchant-agnostic payment, has pulled ahead with an estimated 15 billion transactions annually.

“We’re definitely starting to see the trend move toward more merchant-agnostic apps,” said Good. He tied the emerging trend to upgrades in payment technology such as near-field communications (NFC). In addition, merchant-agnostic apps such as those from Apple are also offering rewards and points — effectively incentivizing consumers to embrace contactless payments.

As physical wallets seem increasingly likely to be displaced by digital offerings, wearables are also gaining favor with consumers, said Good. Payment volume through smart devices worn on the body (watches, yes, but also other options) may top $500 billion this year, he added.

Invisible Payments 

All of these trends point toward the eventuality of “invisible payments,” which remove all indications that a payment is actually taking place. The Internet of Things (IoT) heralds an age where no device is needed to make a payment, and where retinal scans, voices or facial scans are enough to trigger a transaction.

Good pointed to the Amazon Go experience, where Amazon tracks the products that come off store shelves and charges individuals’ accounts when they walk out the door.

“The industry is going to head this way,” said Good, though some consumer education will be necessary to build comfort levels.

As frictionless and contactless payments move toward “invisible” status, said Good, FIs must take heed:

“The ability to pay with a mobile wallet, to pay with your watch, or even to pay with your voice … these are all becoming standard parts of our economy, and that will continue throughout 2020 and beyond,” he told PYMNTS. “So for the bank or credit union — you can’t avoid this business, or you’re going to risk valued customers.”