As consumers’ wallets go digital and smartphones make payment frictionless, the concept of a cashless world appears closer than ever. But does the buck really stop here?
By CPP Investments staff, with contributions by Kyu Ho and Mike Rodgers, Senior Portfolio Managers, CPP Investments.
It wasn’t that long ago that cash was king and reigned supreme over the retail market.
And while card-based purchases using credit or debit have now become the norm, the emergence of new payment solutions is one factor that is contributing to the disruption in a sector where technological innovation and demographic change have led to the rise of a new currency: convenience in exchange for data.
Technological innovation and demographic change have led to the rise of a new currency: convenience in exchange for data.
From the early days of PayPal and QR codes to e-commerce payment systems such as Paytm and app-based platforms like Apple Pay or Alipay, the pace of adoption is driven as much by the product’s effectiveness in alleviating customers’ pain points as it is about their sense of security in using it.
“When you think back to the first time you made a transaction online and had to punch in your credit card number, there was quite a bit of fear in sharing personal data, but it quickly became second-nature,” says Kyu Ho, Senior Portfolio Manager, Thematic Investing, CPP Investments Asia. “Although recent cases of data breaches have yet to adversely impact consumer behaviour, concerns over data privacy is something we continue to monitor because it will affect the pace of adoption over the long term.”
In every corner of the world, the shifts in the infrastructure of payments and retail ecosystems are forcing governments, businesses and consumers to look differently at various forms of payments, increasingly attaching themselves to a real value proposition as opposed to just a commodity.
In every corner of the world, the shifts in the infrastructure of payments and retail ecosystems are forcing governments, businesses and consumers to look differently at various forms of payments.
“From a global perspective, how (digital) wallets and app ecosystems work in terms of their interrelation into a payment solution is something we are watching closely, particularly in countries like China, India and Brazil where you needed an alternative infrastructure that could scale quite quickly,” says Mike Rodgers, Senior Portfolio Manager at CPP Investments.
However, while payment solutions providers are motivated to show they offer a more consistent and seamless customer experience, it’s the richness of the data collection – and its far-reaching impact on product development, supply chain logistics and inventory management – that is the key selling point.
“From our perspective, we look at companies we believe are well positioned for whichever way the path will go – and are preparing for a world where payment is ubiquitous and frictionless across multiple use cases,” adds Rodgers. “One of the big trends is for payments companies to find out what apps businesses use and embed the payment in it so that every time we order an Uber for example, we’re thinking about the experience, not the transaction. In a way, payment just goes along for the ride.”
Alibaba, which not only owns Asia’s largest payment solutions company but also has investments in department stores and grocery chains, giving the company the ability to capture customer data to better inform their business decisions.
“To me, payment solutions have become an enabler through data analytics,” adds Ho. “When we think about investing in retail assets, we’ll have a view on how much control they have over the payment piece, which can give us a good read into the strength of their business model and the sustainability of their operations.”
In a social age where trade-offs between convenience and privacy are commonplace, there is hope that the democratization of payments – and the prospect of greater financial inclusion – will gain more followers.