Posted by Alison Arthur and Bethany Frank on 24 Oct 2019
An earlier version of this blog was first published in May 2016.
Physical currency is as old as history itself, but modern technology is shifting every aspect of commerce including the use of traditional payment methods like cash.
Cash still has its place in the economy and it’s unlikely that paper money will disappear anytime soon. But it’s also worth noting that paying with cash involves a certain level of imperfect calculation. Consumers don’t always have the exact amount of money required to complete a transaction. In fact, they typically overestimate how much they need to avoid falling short. The leftover money often goes unaccounted for, ending up at the bottoms of purses or beneath couch cushions.
Alternatively, digital payments allow consumers to “keep the change” every time. Precise transactions in lieu of rounded cash payments can create savings faster than one might think. Digital payment options like in-app purchases, digital wallets, and P2P payment solutions can facilitate accurate budgeting and reduce wasted money. In addition to pure savings, consumers can also take advantage of associated perks like personalized discounts and linked rewards programs.
But what about security?
Some consumers still perceive digital payments as less secure than cash. The biggest safety risk with cash is that it can’t be replaced if lost or stolen. However, cash also provides anonymity in payment transactions whereas there is always a data trail associated with digital payments.
While it’s too soon to determine definitively whether digital payments are safer than paper-based payments, there are safety features built into digital payment transactions that aren’t possible with cash or paper checks. Techniques like multi-factor authentication, biometric scanning of fingerprints or faces, and encryption can provide extra layers of security in digital payment transactions.
More speed, more convenience
Technology is fueling faster everything, and consumers need products and services that can keep up with their busy lives. Perhaps the biggest drawback of traditional payment methods is their incompatibility with the expanding digital universe. As technology becomes more embedded into everyday life, traditional payment methods like cash may feel increasingly cumbersome to consumers.
The internet of things (IoT) is poised to speed the pace of change even further with device-driven payments powered by intelligent personal assistants like Amazon Alexa and Google Assistant, for example. Wearable payments via devices like smart watches and fitness trackers are likely to have an impact as well. Payment methods that slow consumers down may create additional friction and frustration as the world continues to modernize.
Are physical wallets becoming a thing of the past?
Despite the proliferation of digital payments, consumers often find themselves in need of a physical wallet to carry essential items such as a driver’s license. Also, there remains a need to carry backup payment methods in case a merchant doesn’t accept digital payments or is having issues with their point of sale technology. Until everything from receipts to personal identification documents can be stored and accessed digitally, it’s likely that physical wallets will continue to occupy space with their owners.
The Bottom Line: Cash isn’t going anywhere, but the continued proliferation of digital payment products and services suggests that consumers are interested in alternatives to traditional payment methods. For businesses that want to keep up with rising consumer expectations, it’s imperative to accept a variety of digital payment options in addition to traditional payment methods to deliver a comprehensive customer experience.
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