Momentum Building Towards a "Cashless" Society
While futurists have spun predictions of a "cashless" society since the middle of the last century, momentum is gathering that may turn this vision into reality in as little as 10 years. New research from TowerGroup finds that a combination of market-ready and emerging technologies is aligning to drive a majority of consumer payment transactions from cash toward other payments "form factors" - including the Internet, mobile and contactless payments.
"By 2015, a substantial share of consumer payments globally will have moved from cash to other payment mechanisms," said Theodore Iacobuzio, managing director in TowerGroup's Executive Research Office and content lead on the European Banking & Payments practice at TowerGroup.
"Many of these new form factors are already being tested in broad consumer settings in countries around the globe - from contactless payment terminals and fingerprint recognition payments, to mobile and micropayment roll-outs."
Highlights of the research include:
- Over time, TowerGroup believes payments will move increasingly toward a "pay-as-you-go" model, where consumers buy what they want wherever they are. But while payments will be made increasingly through clicks and texts rather than cash or even traditional plastic, the majority will still be fueled by traditional bank relationships and run through established payments networks and infrastructure.
- TowerGroup expects the total market for micropayments in the United States to reach US$11.5 billion by 2009, with almost US$5 billion of that amount transacted via mobile phones. The global mobile commerce market is expected to become a major industry with revenues of US$50 billion to US$75 billion by 2009 - with global micropayments generating about US$40 billion in revenue.
- As payment mechanisms shift away from cash and traditional card forms, stronger authentication methods will become increasingly critical - particularly to move beyond micropayments in the mobile realm to allow the purchase of high-value items. TowerGroup expects to see aggressive movement in the financial application of biometrics authentication technology over the next 10 years, fueled in part by government adoption.
- TowerGroup notes that financial institutions dismissing evolving payments models as quirky or meaningless to their current business strategies risk being supplanted by more nimble and far-sighted competitors. They must also consider the impact of non-traditional payments players, such as telecommunications companies looking to grow their share of the nascent mobile payments space.
"Ultimately, control of the payments network itself will be more important than changes in the form factor of payments," said Iacobuzio. "While certain non-traditional players may make headway in taking share of new payments mechanisms, TowerGroup believes that the payments network as a whole will remain firmly in the grip of financial services institutions - though the definition of what constitutes such an institution is currently in flux. The nature of payments form factors should ultimately be irrelevant to financial institutions, as long as they are willing to engage in innovative partnerships to keep up with both technology and consumer desires. If they ignore the issue, however, they could lose the ball."
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