This past decade has been one of constant innovation in the financial space with new technologies and solutions being driven by consumer demands. For example, it was the consumer demand for safety and privacy that birthed the EMV chip card which has now become the standard for all debit and credit cards. However, with the additional security measures came longer checkout times, which caused consumer preferences to swing to a frictionless checkout process, with 61% of consumers stating this in a Celent Poll of 40 financial institutions. This brought about contactless cards and mobile payments which use tokenization technology to both fulfill the need for safety while also drastically cutting down checkout times.
Technologies such as these will only continue to expand in this new and exciting decade and will affect the entire financial industry, especially the Debit space. It is imperative that financial institutions listen to what their consumers want and deliver the right technology that fits their customer base.
Why upgrade now?
Historically, merchants of all sizes have been slow to upgrade their Point-of-Sale (POS) terminals to allow customers to use the latest technology. This is due to most merchants preferring to wait and see if there is an actual need for it before investing in a widespread adoption. This has caused some financial institutions to take the same approach, waiting to invest in mobile/contactless payments until a clear market has been established. However, as Millennials and Generation Z continue to gain spending power, and with these customers wanting the latest tech, financial institutions need to make the switch now or risk losing this customer base.
Through expansion of their mobile and contactless payments offerings, financial institutions can boost their debit business and create benefits for both them as well as their customers. Currently, debit cards are the most popular payment type for Millennials (39%) and Gen Z (31%) and second for Gen X (29%) and Baby Boomers (28%) (Statista). By allowing consumers to put their debit cards onto their phone through a mobile wallet, FIs are giving people convenience and ease of purchase. Whether they are buying online or at the register, empowering consumers with this safer, frictionless purchasing technology allows FIs to build a brand around innovation and being technology frontrunners. Banks and credit unions that are quick to adopt also begin to penetrate their cash-oriented transactions which do not gain revenue. In fact, according to a study by AT Kearney, contactless payments are expected to boost global card expenditure to $45 trillion by 2023.
There is also a lot of room for this technology to expand. With more and more technology being added to automobiles, it is only a matter of time before some type of payment method is integrated. Imagine uploading your debit card into your car and being able to use it for gas, toll booths, parking garages, drive through’s, etc. Not only would this provide even more convenience for the consumer, but would allow merchants to cut their bottom line by investing in this new tech.
Creating a common experience
For mobile and contactless to reach their potential in the Debit space, there needs to be a common, universally accepted experience. This can be done by creating a set process and expanding consumer awareness on where and when they can use their mobile wallets. Consumers need full transparency and an assurance that their mobile wallet will work at where they like to shop. By taking the thinking out of mobile and contactless payments, consumers will begin to develop the habit of just bringing their phone with them to shop, meaning the need for a physical plastic card will decrease.
Regardless of whether financial institutions remain skeptical, these new technologies are already here and the need to adopt is imperative in order to capture a market of consumers that want the newest tech. Certain FIs may not have to be the first to adopt, but by continuing to prolong the inevitable presents a risk that most banks and credit unions cannot afford to take.