Future Payments: Informed implicit consent
I spent a couple of hours in the studio this week talking to the BBC about the future of cash, on the 50th anniversary of decimalisation. It’s not a very bright future for our plastic notes and shiny coins. Usage is declining at an incredible rate, from almost two thirds of transactions 12 years ago to less than 40% now. The prediction is that by the early 2020s, it will be used for fewer than one in five transactions.This shouldn’t surprise anyone. Cash is an explicitly high-friction technology that becomes ever less convenient the less it is used. If there’s been one thing clear about shifts in consumer behaviour over the last few years, it is that we will do anything to minimise friction. Hence the popularity of contactless payments and pay-by-phone, and the even lower friction of automated payments for services like Uber.The result is that we have taken out less cash, which means more bank branches and ATMs close. This makes it even harder to take out cash, further increasing the friction and accelerating the cycle. Once we get down to the point that cash is used for just 20% of payments, I think the rate of decline will accelerate further. Cash won’t disappear altogether though, it will just be an occasional item rather than permanent pocket contents.
Business support
Apparently some cafes and shops have already stopped taking cash, having woken up to the fact that handling it is expensive — probably more so than taking cards. Which makes the refusal to take cards, or arbitrary card payment charges, look even more absurd. This cannot last for long.Rather, consumers and businesses alike will look for increasingly low-friction forms of payment, and business models that support that. Paypal’s experiments with ‘pay by face’ is one interesting example: buy a round of beers on your phone and collect them at the bar where the server recognises your face from a screen. Amazon’s Go store is another.The risk here is that it becomes too easy to spend money without awareness of how you’re spending it. But the Open Banking arrangements seem to have addressed that. Apps can now give you a richer than ever analysis of your spending, and trigger alerts when you’re spending too much. But only if you use your card of course. Cash in your pocket may give you a feeling of control, but in my experience, it generally just burns a hole.
Informed implicit consent
The default model for payments in the future will be characterised by this ‘informed, implicit consent’. We will choose to buy something and we will be billed for it, with the minimum possible interaction to achieve a secure transaction. And our technology will ensure we are well informed about both our ability to pay, and retrospectively, what we have spent. Whether this works to improve our financial literacy and reliance on credit remains to be seen.