BLOG ・ INSIGHTS ・ TRENDS

The Shell Game: A Look Into the Future of Retail Payments

Retail is changing at a breakneck pace and retail payments along with it. Find out where the industry is going with a look at three trends on the horizon.

December 1, 2020 ・5 Minutes

Well into the 20th-century shells were an acceptable form of payment in certain parts of West Africa. Cowry money could be used to buy livestock, slaves, and services in many parts of Asia and Africa for centuries. As a system of payment in a proto-globalised world it had the advantage of being a portable, secure store of value accepted across many cultures and geographies – from Benin to Beijing.

The humble shell is an example of retail payments technology in a loosely connected world. Today, in a world with ever-tightening connections, retail trends are following a similar formula to take payments forward by improving security, speed and convenience.

A brief history of firsts in payments since 1950

Biometric security

Cowry money declined for two reasons: it failed to store value once traders figured out that they could import thousands of shells from Zanzibar and the Maldives to flood the West African market and it just was not secure enough. Any shell-like object could be thrown into a bag of cowry shells and pass muster. Eventually, every payment system fails one or both of these standards and falls out of use.

More recently magstripe cards failed the security test as fraudsters perfected cloning of cards. Chip-and-pin cards followed and mobile wallets in the last decade, but all of these methods are based on having a physical device that proves that you are who you are and that you have value to exchange. With biometric security you are the device: your fingerprints, face, eyes and even your heartbeat can be used to identify you to complete a transaction. And with many smartphones and electronic devices incorporating fingerprint sensors and other biometric tools, consumers are already ready to make the leap.

The technology faces many regulatory hurdles around privacy and surveillance, but they have a track record. India’s national ID program – called Aadhaar – uses biometrics to keep track of 1.26 billion people, while China is deploying even more wide-ranging applications using biometrics through applications like WeChat and AliPay.

RETAIL

Amazon Go

No lines. No checkouts. That’s the promise of Amazon’s new retail spaces. The catch: surveillance. Heavy surveillance. For now, the lynchpin of the system is your smartphone, but in the future retail spaces such as this may rely on tracking your biometrics to enable a frictionless shopping experience.

Digital currency and retail payments

Since Satoshi mined the genesis block of Bitcoin, cryptocurrency has hyped itself as the evolution of fiat money, but so far has not met that lofty goal. Instead, speculators have seen it as an alternative investment, liable to swing ever which way like a leaf carried by a zephyr. But the promise of cryptocurrencies is too compelling to ignore: low (or no) fees, peer-to-peer payments, access for the un-banked, and a transparent ledger of transactions.

Until recently governments were understandably reluctant to buy into this promise as they would lose control of monetary policy. But efforts to create stable coins, such as Facebook’s Libra, are showing that maybe digital currencies are maturing and getting ready for broader use, and regulatory scrutiny. Some central banks are also exploring the possibility of issuing their own digital currency. So the question is not ‘if’, but when and how cryptocurrency retail payments will work.

An illustration in an article about retail payments trends on gugulet.hu

Bringing retail into your home

The last major inconvenience of shopping is location. You have to go somewhere to shop somewhere. Online shopping has been chipping away at the supremacy of bricks-and-mortar ever since Ms. Snowball made the first online purchase in 1984.

Now, especially with the limitations imposed by lockdowns this year, online shopping has found another tier of general acceptance. Amazon is a jungle of never-ending shelves of products limited only by your financial means. Smaller businesses have had to leap to survive and many will be questioning why they ever needed physical retail space. The next frontier is virtual and augmented reality, and voice.

Picture this: you need an outfit for an event but you have no time to go shopping. You pick up your Oculus VR headset and dial into your favourite fashion brand. You ‘walk’ around the store looking for the outfit that suits you. You try it on virtually using an avatar simulating your body measurements. You find the right fit, you consult with an AI assistant, you pick the materials and you’re done – without leaving your home.

TECHNOLOGY

62% of those who regularly use a voice-activated speaker say they are likely to buy something through their voice-activated speaker in the next month.

Or you chat to Siri, Alexa, Cortana, or Bixby and describe to them what you want to buy. They give some options and you buy. In both of these scenarios, consumers expect a seamless payment process to complement them. Alexa asks for your PIN to complete a transaction, but a future where your voice is also used to secure the transaction is near.

We’ve come a long way since cowry money and Diner’s Card, but the principles remain the same. Retail demands convenience and ease. Retail payments require security and portability. Where there is an overlap is a future where you never have to consciously think about making a payment.

It just happens.

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Sources:

  • National Bank of Belgium Museum, http://www.nbbmuseum.be/en/2007/01/cowry-shells.htm.
  • University of Virginia, Monticello, https://www.monticello.org/site/research-and-collections/cowrie-shell
  • Square, https://squareup.com/us/en/townsquare/history-of-money-and-payments
  • Adyen, https://www.adyen.com/blog/how-the-payments-industry-evolved
  • UK Online Retail Association, https://www.imrg.org/blog/online-retail-payments-trends-what-the-future-holds/
  • BBC News, https://www.bbc.com/news/magazine-24091393
  • The Guardian, https://www.theguardian.com/us-news/2020/feb/25/amazon-go-grocery-supermarket-seattle-technology
  • Google Think, https://www.thinkwithgoogle.com/consumer-insights/consumer-trends/voice-technology-purchasing/
  • Payvision, https://www.payvision.com/payment-insights/retail/top-5-trends-retail-payment/
  • European Central Bank, https://www.ecb.europa.eu/press/key/date/2020/html/ecb.sp201104~7908460f0d.en.html
  • Aadhaar, https://uidai.gov.in/

BLOG ・ EXPLAINER ・ BANKING

Open sesame

The banking system is built on information. What happens if that information is shared?

December 1, 2020 ・2 Minutes

The myth of Swiss banking is that only you and your banker know where your money is from and when and where it moves. In 2016 the Competition and Markets Authority forced the biggest banks in the UK to adopt a model on the other end of the scale. One that allowed the account holder to willingly share their information with an authorised third party, and even allow them to transact on their behalf.

Another way to think of this is by using the analogy of a telephone call. Closed banking is a conversation strictly between you and your bank. Open banking is a conference call between the bank, you, and anyone else you invite.

In software terms, this is enabled by Application Programming Interfaces (API), which are a set of rules and procedures that enable different programs to pass information between each other. With an API call, a third-party app can retrieve your balance, your recent payments, and almost any other information your bank keeps about you. The European Union’s version of Open Banking is known as the Second Payment Services Directive or PSD2.

"Opening up bank data gives fintech firms the opportunity to build new businesses and incumbent banks the incentive to improve their services. In both cases, the winner will be the consumer."

The Economist

Why is this revolutionary?

What this means is that your bank doesn’t have to be the way you interface with your money. If your bank is unresponsive and outdated in its ways then you can choose to outsource some of its client-facing functions to a friendlier face.

Everything from loans to insurance can use the data your bank holds to give you faster, snappier service and products. For example, if you were looking for a loan in the past the bank was often your only option. But now in your personal ‘conference room’ all you need is your preferred loan provider by your side to parse the data your bank sends and to talk to you in a language you can understand.

But for payment platforms, like Adyen, the benefits go even deeper. By serving up a layer of products built on top of banks’ open APIs Adyen offers global companies one convenient platform across all borders. Instead of having to figure out the intricacies of the banking system in Brazil, and in the UK, and in France, and in Canada (…) to receive payments they can turn to a global payments platform that knows the ins and outs of each country’s respective Open Banking API suite. All online, in-store and mobile payment channels are served and managed from one place, with the data analytics to help the business grow even further.

Open Banking for all

On the Adyen end, Open Banking simplifies the payments stack by removing middle-men (with their fees) and speeds up the process by allowing direct access to bank data. And as Open Banking initiatives sprout in more and more countries the globe gets flattened and it gets easier to move money.

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