Why New Payment Methods Will Displace Cash, Not Replace It

Mobile payments are getting simpler but, in most cases, they still have a job to do to displace cash. As long as cash remains the favourite means of payment, businesses looking at opening up the mobile and card channels have to be sure that they are giving consumers clear reasons for purchasing via these means. However, it’s a rare month in payments where someone doesn’t predict the end of cash. Despite being a strong proponent of the benefits of newer payments methods, I don’t think we should be holding our breath. There’s a couple of reasons for this.

First, consumers in the modern age don’t like ‘one size fits all’.  If you have ever used a “spork” at a party, that gimmicky combination of spoon and fork, you’ll know it does neither as well as the separate implements. And despite the predictions of a single gadget for everything, many of us happily carry a separate phone, PC, tablet, e-reader, and shortly, smart-watch too.  They each work best in different situations. This is also true of payments methods, because different purchases have different requirements of speed, security, secrecy, functionality, and so on.  A mobile payment method works brilliantly when you need to act at a distance, or transfer information. But if you want to tip a busker, then cash may well be the easiest thing.

Second, old habits die hard, and this is especially true in payments. As a consumer product, payments has a fairly unique combination of being to a consumer simultaneously both risky and boring. This means that not only does a consumer need a good reason to use a new method, but also they aren’t that interested in considering the options (sad but true: the only people who are interested in payment methods, are people like us in the payment industry). So even when a different option might be better, they may well use an old one out of habit, or even flip between the two on a whim.  I’ve got a Starbucks app, but I sometimes pay in cash – I just forget, or the cash comes to hand first.

Finally, new technologies rarely completely replace the old, they just push them into niches. Cinema didn’t replace theatre, TV didn’t replace cinema, and I doubt that YouTube will replace TV. The microwave didn’t replace the stove.  And even vinyl records, film cameras, and paper books seem to have their proponents, despite being, on the face of it, obsolete.  So if I had to predict, I wouldn’t expect cash to disappear. I’d just expect it to be used for a narrower range of purposes, by certain people in certain situations, rather than by everyone for everything.

And herein lies an important lesson for those of us involved in developing and promoting those new payment methods: success won’t come from replacing cash, so that it wasn’t what we should be trying to do. Success will come from offering consumers new benefits that can only come from the new method, whether that is personalisation, use of data, location specificity, or something else. Do that and the new payment methods won’t replace cash. They’ll simply displace it.

Dan Salmons is managing director, PayPoint Mobile and Online

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