The Digital Disruption of Cash and Cards: Embracing the Future of Payments

2. More Daily Digital Disruptions • We live in a time of transformational disruptions – primarily digital disruptions – that seek to provide even more value, although very fundamental elements of our lives will change, including the use of cash, credit/debit cards and paper. • Some people are early adopters and are embracing these changes without hesitation while other are wary and cautious, even dismissive that these changes will occur and be beneficial. • Transitioning to a society without cash, credit/debit cards and paper will be a steep climb, but all indications are it will happen – and with all the digital/technology disruptions of recent years, we are already on the path.

3. The Broad Trends • The introduction of credit and debit cards decades ago has already affected Americans’ use of and attitude towards cash, but new technologies are quickly making those cards less attractive. • As much as we still rely on paper in our lives and businesses, 67% of those participating in a November 2018 Ipsos poll said digital will eventually replace printed materials. • As with many of these digital transformations, age is always a contributing factor, as young people embrace the “new” faster than older adults who are understandably reluctant to make such radical changes.

4. Cash Is Everywhere, But Here • According to the US Federal Reserve, there was $1.57 trillion dollars of US currency in circulation, as of 2017, but $1.25 trillion of it was $100 bills and $1.07 trillion was held abroad. • According to a September/October 2018 Pew Research Center survey, the use of cash has decreased 25% for all or almost all purchases since 2015, and the percentage of Americans with cash on hand has decreased to 53%. • The Cardtronics’ Health of Cash 2018 Study reported debit cards were Americans’ most preferred payment method, at 37%; followed by cash, 28%; credit cards, 20%; digital, 13%; and check, 2%.

5. Challenging the Cashless Trend • Many states and local municipalities are concerned cashless stores, in particular, would “discriminate” against people with lower incomes, as they are less likely to have the credit ratings to acquire credit/debit cards or own a smartphone. • In fact, during the writing of this Special Report, New Jersey banned cashless stores, and Philadelphia did recently. • The Pew Research Center data revealed 29% of Americans who earn less than $30K use cash for all or almost all of their purchases while it’s quite the opposite for those earning $75K or more, at 7%.

6. Mobility to Drive Adoption of Digital Payments • Although it may be wishful thinking on the part of Dan Schulman, CEO of PayPal and Venmo, its mobile payment service, he stated during a February 2019 CNBC interview that the digital payment industry could become a $100-trillion market. • His optimism is likely based on the $19 billion that was transacted through Venmo during Q4 2018, an 80% YOY increase, and a forecast of $100 billion in payment volume during 2019. • Just 26% of consumers said they used a mobile phone for transactions and 17% for an in-store purchase, but the reported 55.0 million Americans who used proximity mobile payments during 2018 will increase to 61.6 million for 2019.

7. More About the Future of Digital Payments/Wallets • According to Logica’s 2019 The Future of Money Report, today’s top three online payment preferences – credit card, debit card and PayPal – will all decline by 2023, while 12% of consumers said their preference will be a “future, unknown technology.” • Of the consumers participating in the 2018 Synchrony (Bank) Digital Study, 60% predict the average shopper will carry his or her phone, but no wallet, but 42% don’t want all their credit and rewards cards on their mobile device. • The 2018 US Mobile Consumer Report from Vibes revealed, however, that smartphone users, and Millennials and Gen Xers, specifically, have more interest in mobile wallets when they provide access to the best promotions and offers.

8. Retailers’ Two Cents on Payment Trends • PYMNTS.com and AEVI’s October 2018 study, Retail Innovation Readiness Index, reported 81% of the top 60 companies surveyed are compelled to innovate because more consumers are adopting and embracing new payment methods. • Unfortunately, the percentages decline precipitously among the middle and bottom 60 businesses, 47% and 0%. The primary difference is the larger retailers are more focused on responding to customer demands and enhancing loyalty. • The bottom 60, in particular, said they don’t view innovations in new payment methods as a path to growth and a competitive advantage. An important finding to share with any of your reluctant prospects and clients.

9. Retailers Benefit from Cashless Transactions • More restaurants continue to implement a cashless-transaction policy, because customers want to spend less time waiting for their orders and restaurants want to increase the number of customers served during a given period of time. • Another compelling reason for retailers to embrace cashless transactions is to avoid their share of the more than $90 billion in swipe fees from credit-card companies during 2018. • According to the Mobile Payment & Fraud: 2018 Report from Kount, The Fraud Practice and Braintree, 29% of merchants accepted mobile wallets during 2018, a substantial increase from 2017’s 22%.

10. Credit Cards Are Not Immune to Obsolescence • Dan Schulman, CEO of PayPal and Venmo, also declared at a May 2018 conference that he expects credit cards to become mostly obsolete during the next 20 years. • Mr. Schulman’s wisdom extended to an important insight: Although consumers will need one method or another, or multiple methods, to pay for purchases, they are more likely to choose that method because of “front-end benefits.” • Exclusive data from Business Insider Intelligence reveals 35%, the largest percentage, of surveyed consumers said “types of rewards offered” was the top reason they used one credit card more than others – and that is a “front-end benefit.”

11. Millennials Fear Debt More than Death! • Multiple sources have reported Millennials continue to avoid acquiring credit cards and using them as a result of their experiences during the recession and the overwhelming burden of student debt. • According to an October 2017 survey of 500 adults 18–34 from Credible, Millennials said they actually feared credit card debt (33.2%) more than death (20.4%)! • The average credit card debt for Millennials (or at least those Credible surveyed during October 2017), was $5,290, less than the rest of us, but Millennials have plenty of buying years/decades to increase the average.

12. Contactless Cards Are Next • According to A.T. Kearney, banks will be distributing contactless cards on a broad basis during 2019, and all of the 10 major banks will do so by early 2020, as the penetration rate is forecast to increase from 41% to 56% by 2022. • These are credit cards with the EMV chip and an NFC (Near-Field Communication) antenna as a stripe on the face of the card, and they can be placed near or inserted into a card terminal. • As of January 2019, all Target stores were able to accept contactless cards from Visa and Mastercard as well as Apple Pay, Google Pay and Samsung Pay. Previously, Target was one of the biggest retailers excluding Apple Pay as a payment option.

13. Biometrics and Scan-and-Go Are Also Future Players • A 2017 Visa survey found 86% of people are interested in biometric technology as a form of payment identity via fingerprints, facial recognition and even the veins in the palm of your hand. • Scan-and-Go technology is Amazon’s widely-reported foray into the future of consumer payments. A May 2018 survey from GPShopper revealed 48% of US Internet users expect the technology to make shopping easier. • Of the US Internet users responding to a May 2018 GPShopper survey, 50% said grocery shopping is where they would like to use Scan-and-Go; followed by 30%, home goods; 27%, fashion; and 25%, beauty/cosmetics.

14. Fraud Is Always Lurking • The US Department of Treasury estimates $70 million to $200 million counterfeit bills are in circulation or a range of one note in 10,000 to 4,000. • Credit card fraud (stolen and hacked) decreased by 51% from 2015’s estimated total of $3.5 billion to 2018’s estimated total of $1.8 billion and the significant improvement is attributed to the introduction of the EMV chip. • According to the 2018 Mobile Payments and Fraud Report from Kount, The Fraud Practice and Braintree, 53% of surveyed merchants considered “ease of use” in mobile commerce to be most important, with “security/fraud risk” second, at 38.9%.

15. Merchants Confronting Fraud in the Mobile Channel • It’s quite astounding that 34.8% of merchants said they do not track mobile fraud, since 57.8% said mobile fraud attempts increased from 2017 to 2018, while 34.1% said they remained the same and 8.1% decreased. • Of those merchants with less than $10 million in revenues, 72.3% said they don’t think specialized risk management tools are needed in the mobile channel, compared to 36.7% of those with revenues of more than $250 million. • CVV is the #1 tool or service merchants used to prevent mobile fraud during 2018, and not-for-profits, at 86%, used it the most. Telecom companies use NFC technology the most and games/gambling used biometrics the most.

16. We’re Still in Love with Paper • According to a November 2018 Ipsos survey of 2,010 US adults, 47% said they would “feel sad” if there were no printed materials, compared to just 5% who would “feel happy” and 1% would “feel relieved.” • Despite a continuing attraction to printed materials, 64% of the survey respondents expect print materials will decline into the future, and especially those younger than 55, at 68%. • Although 76% said the quality and graphics of print are critical to attracting their attention, 56% disagreed with the 39% who said they preferred less text and more graphics.

17. Paper Receipts Still Prevail • Paper receipts is a particular category of printed materials of interest to consumers and retailers. An August 2018 YouGov Omnibus survey found 68% of US Internet users preferred a paper receipt, compared to just 19% preferring a digital receipt. • Somewhat surprisingly, even the youngest adults still preferred paper receipts, at 52.5%, but they had the largest percentage of those preferring a digital receipt, at 23.5%. • Approximately three-quarters or more older adults prefer paper receipts: 45–54, 74%, and 55+, 83%.