Is Cashless Now King?

Visa and Mastercard logos on credit cards.More and more, U.S. consumers are adding modern payment systems to their wallet so they can have more flexibility when making transactions.

By Mark Battersby, Contributing Editor

The continued use of cash is surprising given its inconveniences and the risk consumers face in carrying it around. Love it or hate it, cash is increasingly playing a diminishing a role in the U.S. economy including the convenience store industry.

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While a number of countries are working to make payment systems less dependent on cash, many convenience stores that remain dependent on cash sales are finding income and profits declining. Many convenience store operators that are ignoring developments such as the recently introduced EMV Smart Card technology, Apple’s mobile wallet and other mobile payment vehicles and the like, may find profits affected.

The Federal Reserve estimates there will be $616.9 billion in cashless transactions in the U.S. in 2016—10 times the approximate $60 billion in cashless transactions recorded in 2010. In Germany, strong moves are underway toward limiting cash transactions while Sweden is already far advanced towards a cashless society with many museums prohibiting cash payments for admission.

Sweden has advanced far along the cashless path as many banks no longer accept or dispense cash and bill and coin transactions now represent only 2% of that country’s commercial activity.

While the elimination of cash is not yet a government policy in Canada, many people within the country are voluntarily moving toward credit and debit card payments at a remarkable rate with a whopping 77% of responders to a recent survey preferring to eliminate cash.

Along with the convenience offered by cashless transactions is an increased awareness of security. A good example is provided by the new chip-encoded “smart” cards, which an estimated 90% of consumers will soon have.

By now, every convenience store operator should be aware of the so-called “liability shift” that occurred when the new EMV (Europay, Mastercard & Visa) technology was introduced. No longer will the credit card companies be liable for fraudulent use of the old credit card technology.

In essence, businesses such as convenience stores and card processors that continue to use the old technology will find themselves, not the credit card companies, liable for fraud.

Finding a suitable approach for transitioning from conventional credit cards to new EMV smart card technology has been difficult. Some merchant processing companies attempted to persuade businesses to use so called, “semi-integrated” solutions, selling the marriage of existing point-of-sale (POS) systems with the new “smart cards.” Unfortunately, this has not always solved the problem.

Fortunately, there’s good news for merchants in that true integrated solutions have recently been introduced. New tools provide a cutting edge implementation of technology that takes the current POS system data and migrates the communication with a chip processing device. This streamlined process meets regulations, consumer demand and the bottom-line concerns of merchants.

Further illustrating the trend towards a “cashless” world is data showing consumers increasingly embracing technology for transactions. According to the Federal Reserve, banks in the U.S. have been progressively scaling back the number of ATM machines, though ATM use in convenience stores remains steady.

ATMs will continue to see pressure from mobile innovations in technology, as well as contactless payment systems, such as PayPass and payWave, that have reduced the need to carry cash. Consumers can use their smartphone devices to pay for goods much like swiping a debit card. The embedded chip enables consumers to wave their card, fob or handheld device over a reader at the POS terminal.

Hoping to reverse this trend, Android Pay is looking to change the way users interact with their ATMs by taking plastic debit cards out of the equation. As part of an effort to have more consumers use Android Pay in their everyday purchases and finances, the mobile wallet will now enable users to get cash out of an ATM without having to actually put in a debit card. Instead, users can simply use their mobile device with Android Pay, tap at the ATM and proceed with the process as usual.

Mobile commerce or M-commerce, is the buying and selling of goods and services through wireless, handheld devices such as cell phones and personal digital assistants (PDAs) and represented 34% of all e-commerce transactions globally in 2015. M-commerce and other electronic payment methods are gaining acceptance by consumers, while this move away from cash is being welcomed by many retailers.

PayPal, the online payments system, continues to add more merchants and now counts 14 million merchants to complement the platform’s 170 million users. Users will be able to use their mobile phone online, in apps as well as in brick-and-mortar stores and businesses.

Although the digital era has been in full swing for some time, many convenience stores and businesses have yet to invest in the latest technology. Near field communications (NFC) is one such technology retailers ought to consider as part of their marketing campaign.

Many mobile payment systems have been introduced in the past few years including Google Wallet and Apple Pay. Consumers with mobile devices, have a “digital wallet” option (a list that’s ever-growing) that’s accepted by merchants with NFC terminals.

According to reports, Wells Fargo Bank is expected to soon launch an NFC-based mobile payment service. With mobile wallets such as the one Wells Fargo plans, consumers will enter their credit card information in their phones before shopping with merchants who use NFC technology. The consumer holds the phone over a payment terminal and taps a button on the phone or enters a PIN.

Another benefit offered by the new NFC technology is integration with social media.

Imagine, with a quick scan, convenience store customers can automatically alert followers of their location—your store, along with an invitation to join them. In fact, one of the many Facebook apps available, ‘add friend,’ automatically sends a friend request when two NFC-enabled phones come in close proximity.

A convenience store can achieve similar results by setting an NFC tag by the store’s entrance and a friend or “like” request for your operation’s Web page will be sent to customers with an NFC-enabled phone as they enter the premises.

Adopting these new and emerging payment systems largely depends on what the customers of your convenience stores prefer and are willing to deal with. In other words, will the customers embrace or reject these new payment options?

Prepaid credit cards are one alternative, as are vouchers that can be purchased for cash and used for a variety of online services.

There are also large numbers of Americans who are currently “unbanked” for a whole range of reasons. Around 8% of the U.S. population remains unbanked, and 20% of households are underbanked, meaning that “they have a bank account but also use alternative financial services (AFS) outside of the banking system,” according to a survey by the Federal Deposit Insurance Co.

According to a Gallup poll, 29% of Americans in 2014 didn’t have a credit card, and that figure is rising, in part because many Millennials shirk them to avoid high interest rates and amassing too much dept.

The consumer financial services company, Bankrate, published figures putting the number of Millennials without a “major” credit card at 63%. The main alternative used for things such as online shopping are prepaid cards, but they are burdened by high fees.

Many studies indicate that older people hold and use more cash while young consumers are more likely to use new payment technologies—except in the U.S. where younger people appear to use significantly more cash than baby boomers.

The differences between the worldwide trend and that of U.S. consumers may be explained by the fact that younger consumers apparently buy different products and services and at different venues than older individuals. All of which raises the question: Does your convenience store business offer options to cash in on that appeal to the groups that make up your demographics?

The new technologies being created and improved to facilitate cashless transactions and improve security are good news for every business. But, is your convenience store operation really ready for and can it profit in the coming cashless world?

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