Technology
Understanding the Contactless Revolution
Global Banking & Finance Review®
Company
Pavlo Khropatyy, VP, Global Head of Delivery FS&I,
Pavlo Khropatyy, VP, Global Head of Delivery FS&I, Intellias
Stand in the payment queue at any shop in 2023, and many of the transactions taking place will likely be contactless. Indeed, according to industry research, nearly 60% of in-store shoppers paid using a contactless card last year – an increase of 94% compared to the 12 months before.
Among the various drivers of this important trend are the environmental, social, and governance (ESG) policies pursued across the financial services industry. These include efforts to significantly reduce the use of plastic cards across the payment ecosystem – a move which could eventually see mobile contactless apps become the primary payment method.
Considering the ESG standpoint, it becomes evident why the issue holds significance. Approximately 6 billion plastic payment cards are produced annually, with 2.8 billion being credit cards utilised worldwide. These credit cards amount to a staggering 140 million kilograms of plastic, which poses a considerable environmental burden. In light of organisations’ widespread efforts to minimise plastic consumption, this situation is unsustainable, particularly when technological innovations are readily accessible.
Part of the problem with the disposal and recycling of plastic cards is that there are no regulations to manage them when they expire or need to be replaced. For most people, disposal has generally involved cutting them into pieces and throwing them in the bin. This approach circumvents recycling options altogether, but is one that is perhaps understandable given the apparent security concerns. As a result, this waste plastic will generally end up in landfill.
So, what are the prospects for further growth in using contactless payment systems, and where might the industry be heading in the coming years? Firstly, it’s worth noting that the financial services industry has a strong track record of embracing tech-led innovation. As far back as the 1950s, the industry drove the adoption of credit cards in a move which, at the time, brought huge levels of payment convenience. Today, innovation continues to drive positive change, with the digital payments system transforming the speed and convenience of everyday transactions.
However, what needs to come next is for more organisations across the sector to set out their plans to reach net zero. This is no easy challenge, particularly for today’s large and complex businesses that operate across national boundaries to deliver a 24/7/365 business model. Where relevant, minimising or even eliminating the use of plastic can provide significant progress, particularly given the vast number of cards in circulation.
Using contactless payment and mobile e-wallets allow people to stop using plastic cards completely. Whether transactions are completed via a phone app or even a watch, these systems saw significant growth during the Covid-19 pandemic, where many people were reluctant to use physical cash, especially when an effective alternative was readily available. Building on this growth trend will continue to take more plastic cards out of circulation, especially if financial services and app developers can continue to improve accessibility options for people who remain reluctant to switch from physical cards or cash.
Whilst the shift to digital payments brings new risks to security, it has in fact brought significant improvements compared to traditional plastic cards. By leveraging encryption features, authentication protocols, and real-time monitoring of payments, digital payment methods offer significant protection against fraud. These advanced security measures help organisations stay ahead of evolving threats and can provide users with greater confidence in the security of their financial transactions.
However, while the shift towards a digital, contactless payment system offers a wide range of benefits, it also brings some challenges that must be taken into account. One of the most significant is the digital divide between consumers with full and easy access to smartphones, reliable internet, and the technological know-how required to use them, and those without. This issue can disproportionately impact older generations in particular and creates the risk of financial exclusion – a situation that must be avoided.
To address these challenges, there is an ongoing need for more effective educational initiatives from both the industry and government. These initiatives should focus on breaking down barriers and empowering consumers to feel confident transitioning to digital payment systems. Through comprehensive training and support, organisations and government entities can bridge the digital divide, ensuring that everyone can move towards a digital payment future.
There’s no doubt, then, that the expiry date for the use of plastic cards in the payment process is fast approaching – the question for the industry is how soon they can be removed from the environmental burden it creates for the benefit of everyone.
Environmental, Social, and Governance (ESG) policies are standards for a company’s operations that socially conscious investors use to screen potential investments, focusing on sustainability and ethical practices.
Digital payment security refers to the measures and technologies used to protect online transactions from fraud and unauthorized access, ensuring the safety of sensitive financial information.
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