As we continue to navigate the socially-distanced world triggered by the COVID-19 outbreak, there are many aspects of our former lives that we hope will return. Conversely, there are many pandemic-defining behaviours that will remain once lockdown has been lifted. These include how we make payments. From a sharp increase in online sales, to the deployment of contactless payment remotely or at the point-of-sale, the rapid shift in consumer behaviour has been remarkable.
The coronavirus pandemic resulted in an almost-immediate adoption of contactless payments in the UK. This rapid uptake was caused by a number of factors, including:
(i) the presumed danger associated with touching 'infected' objects and the consequential demise of the use of banknotes;
(ii) the increase in the maximum contactless spending limit (in the UK it was raised from £30 to £45 in April 2020, and the FCA announced that it would be further raising the single contactless payment limit to £100 (with the threshold for multiple transactions raising from £130 to £300) pursuant to the UK Chancellor of the Exchequer's 2021 Budget announcement in March 2021: a post-Brexit change given that the UK is no longer bound by the EU-wide cap of EUR 50 equivalent) meaning that more than relatively small purchases were covered;
(iii) those essential businesses that were allowed to open during the pandemic insisting on payment by card rather than cash – this shift to entirely cashless premises being in line with the UK Government's unprecedent public safety advice to utilise contactless payment solutions, wherever possible;
(iv) emergency legislation approved by UK Parliament at various stages during the different lockdowns requiring non-essential purchases (from clothes to alcohol) to be pre-ordered and pre-paid (via 'click and collect' or delivery services), thus allowing non-essential businesses to trade whilst limiting encounters between workers and customers at the point-of-sale, and also between customers from different households in store; and
(v) 'shielding' advice from the UK Department of Health and Social Care to protect the more vulnerable members of UK society by granting them priority grocery delivery slots (with goods to be ordered and paid for by payment card online) by major UK supermarkets for those individuals.
At the point-of-sale, contactless payments are made possible by two similar technologies: radio frequency identification (RFID) technology and near field communication (NFC) technology. RFID technology enables a secure connection from the chip in the customer's payment card to the merchant's payment terminal to effect purchases up to the relevant payment limit. Contactless payment via smartphone apps (linked to an underlying payment card) however enables users to exceed the £45 contactless option, and is powered by NFC technology. NFC technology works by securely connecting the mobile wallet on the customer's smartphone to the merchant's payment terminal. Both NFC and RFID technologies work by assigning a unique digital signature to each new payment, which is much more secure than the traditional 'chip and pin' method, which has the disadvantage of potentially allowing a bad actor to clone a card and obtain the associated PIN.
Other payment technologies have also been piloted during the pandemic, including voice-authentication for transactions, which would enable all ATMs to become contactless, biometric payments using facial recognition or fingerprints and the use of cryptocurrencies for merchant payments and merchant processing.
Populations that were previously averse to using contactless payments over security concerns have quickly shifted their thinking as new payment systems have increased safety (the fear of catching the virus overriding their fears of new technology and concerns regarding theft and card fraud). Secure verification powered by NFC and RFID technologies coupled with the reduced health risk associated with touching a payment terminal that has been used by countless customers before has ultimately proven contactless payments to be much safer than other forms of settlement during the pandemic. Merchants have also welcomed the move to contactless payment, because of the lower costs associated with processing contactless card payments rather than dealing with cash, and increased safety for both their staff and customers by reducing direct and indirect physical contact.
With the recent innovations in technology - especially financial technology (FinTech) - smartphone users can use apps and mobile wallets not only for spending at the point-of-sale, but also to deposit, store, transfer, exchange, invest and earn currency (including fiat and crypto), and to access alternative payment services (including those involving cryptoassets or backed by gold) and benefits not normally offered by traditional banking services (such as "borderless" bank accounts and payment cards). The added benefit of rapid (and in some cases 'real time') transactions and funds flow from a digital system is also helpful to those who work in the gig economy or rely on ad-hoc or freelance work and need to ensure that payment for their services (including receipt of tips from customers) is as immediate as possible.
The continuing interest in developing mobile payments and app-based currency platforms is shared by traditional financial and challenger institutions alike: the possibility of growing market share and increasing their customer base (both in the developed and developing world) mixed with environmental, social and governance (ESG)-focussed considerations is compelling. For example, in Africa and China, the use of digital payments and mobile wallets is commonplace, and has disintermediated traditional financial institutions, especially where such institutions have been reluctant to operate. The rise of FinTech has significantly unlocked new opportunities and delivered financial freedom to huge swathes of the world population that have been excluded from the traditional banking system. Whilst many citizens in the developing world do not have access to a formal bank account, large proportions of this "unbanked" population will however have access to a smartphone. Thus, whilst many may be financially-excluded, they are not digitally-excluded, and may benefit from such improved FinTech and the growing provision of payment systems that fall outside of the traditional banking regime.
With the attention of consumers, companies, Governments and multinational organisations firmly on ESG risk and strategy, there is a real opportunity here to demonstrate leadership in corporate citizenship and social responsibility, in ensuring that contactless payment systems are fit for, and inclusive of, all members of society. A total shift to a cashless society must consider all members of society, in particular those that are still not able to procure access to new or traditional banking facilities, for cultural, legal or economic reasons (i.e. the financially excluded or "underbanked"), and those that cannot keep up with the pace of technological change - including an ageing demographic, those with disabilities, or residents in remote areas without reliable internet access (i.e. the digitally excluded).
The move towards widespread acceptance of contactless payment solutions was already in motion. However, it is undeniable that the coronavirus outbreak has acted as a catalyst for this rapid uptake in consumer adoption. In a climate of COVID-19 recovery, rebuilding consumer confidence, and spotlight on ESG considerations, one can only expect this trajectory to continue and to further develop as new technological FinTech innovations are released, and the world pushes forward with decisive adoption of contactless payment solutions. Whatever the "new norm" looks like, one thing is for certain: contactless payments are here to stay.