Just like they were ahead of the curve in dealing with COVID-19, South Korea has been at the forefront of contactless payment since its launch of UPass in 1995. Seoul’s transit authority offered one of the world’s first contactless payment systems, offering riders a quick, easy way to pay for bus rides. Over 25 years later, it has taken a pandemic for us to recognize the urgency with which we should be moving forward with digital transactions.
A new health paradigm, a new payments paradigm
There are many benefits to ridding ourselves of cash. Moody’s Analytics estimated that higher card usage contributed an additional $296 billion to consumption between 2011 and 2015. That cumulative increase roughly amounts to a $74 billion contribution to GDP each year. This implies that card usage is responsible for a sizable increase in global spending and job creation and that ridding ourselves of cash might make these global economic benefits even more potent.
The need for social distancing has rendered the average cash transaction an unnecessary health hazard to those at-risk and propagates transmission of the disease. We now have the technology to mitigate this unnecessary risk, so why not accelerate the transition to digitized transactions?
Earlier this year, South Korea’s central bank quarantined all bank notes and burned some currency to reduce the risk of an outbreak. The bank also plans to launder the money through a high-heat process before it goes into circulation. The United States has not taken such efforts yet, but the government is encouraging all citizens to practice self-quarantining and social distancing.
According to RTi Research, a sizable group of consumers is concerned about catching COVID-19 when they pay for things. About 29% are “extremely” or “very worried” about catching the disease from cash and 22% are concerned about getting it as a result of paying with a card and touching the surfaces and the buttons of the traditional Merchant Acceptance devices, like those from Ingenico, Verifone, Pax, and more.
Card acceptance is the real bottleneck. Not Apple Pay, not Samsung Pay. Card acceptance.
Neither Apple Pay nor Samsung Pay will make the biggest contribution towards mass adoption of contactless payments deemed necessary by our current global crisis. In reality, the biggest impact will come from making normal plastic cards contactless. Unlike common belief or popular marketing messages, using a contactless card is undeniably faster than pulling out a phone, using facial recognition to hopefully unlock it on your first try, opening the app, and then tapping it to the sensor. One tap with a contactless card always presents a faster engagement, and a better user experience by avoiding the hassle of and the struggles with the mobile wallet.
The good news is that contactless technologies for credit and debit cards are mature and are functional. But does that mean that contactless cards will solve all our payment problems, as many would have us believe?
Payment experts disagree.
Payment experts know well that the bottleneck in digitization of cash is not the card. We have 6 billion cards globally. You can keep them in plastic; make them contactless; or digitize them into an Apple or Samsung device. It does not really matter and it won’t really matter because it is still the same card.
A card is used to make a payment, but a card reader is needed to accept that payment. So with 6 billion cards out there, why do we only have 60 million card readers / terminals/ acceptance devices in the world?
See the bottleneck?
It is all about acceptance, which means it is all about software-based acceptance
Given the diversity of the objects or “things” that construct the Internet of (payment) Things, most use cases are going to be harder to implement than Apple Pay, where security is somewhat hardware bound and owned by only one party: Apple.
For such security to work, it has to have ubiquity, agnosticism across devices and operating systems, as well as freedom of ownership and control: a very crucial component of all players in the ecosystem. Just think of the complexity of having to secure the privacy, integrity, and authenticity of an interaction where your iPhone needs to communicate with multiple devices of different make, model, and operating system.
Imagine your iPhone needing to talk to a GE medical device, before connecting with a certain doctor’s Galaxy tablet so that you can find out when to get to the hospital for your procedure. All of these transactions can be data and can also include payments, access, identity, authentication, etc. More complex and unexpected scenarios are bound to emerge in an increasingly digital world. How can the complex and static nature of hardware-based security provide a seamless-but-secure traversal of relevant data across those disparate systems – each of which has its own set of protocols and asset management controls?
For this to work neither Apple, Google, GE, Ford, Honda, Samsung, or Toyota can hold a secure solution hostage based on owning a chip, a device, or a phone. In other words, the Internet of Things security has to be mostly in software that is common across devices or at least has a standard set of common APIs across such devices.
So, how can we enable all those systems to engage and cooperate? Who has the key?
The answer is: whoever enables the market to drop these legacy, expensive devices and use pure software to enable cross-systems workflows, yet maintain a high security posture and provide operational excellence.
It is not just how you do UX or distribute the software. We have to get rid of hardware complexity and its high cost maintenance in favor of the simplicity, ubiquity, and operability of secure software solutions.
This column does not necessarily reflect the opinion of FinLedger’s editorial department and its owners.
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