Contactless payments make up 48% of all European payment transactions made at point of sale (POS) each month — ranging from 93% in The Czech Republic to 14% in Germany. Quite the range, but apparently not for long.
“Viva Wallet has identified three groups when it comes to European payments,” says Dimitris Makris, senior VP for corporate development at European neobank Viva Wallet. “Leading countries that have around 95% adoption of contactless cards. A second group with about 80-85% adoption. And then those lagging behind at 65% or less.”
But, in just five years, Makris expects to see around 95% coverage across most of Europe. “It’s really exciting,” he says.
And yet, for many, contactless is old news — just an easier and more convenient way to pay than chip and pin. So what comes next? Are there still ways to make them better?
Sifted asked the experts to analyse the current adoption of contactless payments, alongside the pain points that still exist for customers and merchants, and predictions for how the decade will unfold.
Payments: the status quo
Whether you’re in one of Makris’s leading countries or one that still prefers cash, contactless adoption is making rapid strides across Europe. Research from the European Central Bank in 2021 found that the total number of non-cash payments in the eurozone increased by 12.5% to €114.2bn.
When you’re on the inside, you see spaghetti of technology holding us back
There are a few reasons: ease of use (despite complexity behind the scenes); the rise of mobile wallets like Apple Pay and Google Pay; and new payment methods across the board (like QR codes).
Yet, Makris says legacy is still holding payments back. “The current payments ecosystem is fractured, with each local market featuring its own tech, protocols, algorithms, and systems,” he says. “When you’re on the inside, you see spaghetti of technology holding us back.”
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The other big problem, according to Makris, is managing complexity. This is particularly for consumers, who are divided between the trusted brands they’ve known since childhood and the new players that provide simplicity but can be limited to specific use cases.
Customers end up having to use many brands, and that’s part of the problem, adds Makris.
For merchants, the issues are the same: marrying the old and the new. But the problem here is that they’re the ones operating at the whims of the consumer — constantly playing catchup as consumers flip between new wallets, payment schemes, account-to-account payments and lending services like buy now, pay later.
The cost of payments also continues to be an issue for merchants, as well as flexibility.
Flexibility is the future
One of Viva Wallet’s customers, Cameleon, a Belgian fashion outlet and department store, knows the challenges of payments all too well. In November 2020, the company was declared bankrupt. A month later, a conglomeration of 60 employees banded together to take over the business. But finding a suitable payment system was easier said than done.
We had to find a flexible, agile payments provider that could help us implement a solution quickly. The big players on the market couldn’t do it
“Suddenly, we had to reopen our stores in just three days,” says Pascale Switten, chief “emotional” officer at Cameleon, a title she chose to reflect that emotions play an integral role in business. “So, on the 26th of December, we had to find a flexible, agile payments provider that could help us implement a solution quickly. The big players on the market couldn’t do it.”
Cameleon turned to Viva Wallet, which installed 16 cash desks in two days. Going forward, Switten aims to implement payments tech.
“Looking ahead, we’re really waiting for more services like buy now, pay later and more integrated cashless systems that allow customers to pay anywhere in the store,” she says. “For example, a mobile app that will validate purchases without having to speak with a member of the cash desk would be amazing.”
A new world for payments?
Eliminating technological constraints (like Cameleon experienced) will be part of the payments story this decade, says Makris. To do this, he says companies — with the support of the regulators — will have to improve and simplify the KYC (Know Your Customer) process and establish digital identity.
Eventually, we’ll need to step back and consider the merchant's needs end-to-end
“If we can get that right, customers will be able to try out new services faster and easier without fear,” says Makris. “We’ll see the survival of the fittest at work, and that’ll speed up the evolution of payments.”
Another critical tech problem is the merchant challenge of having to use multiple payment systems.
“In-store payments require the juggling of devices, tablets, payment terminals, POS devices and cash registers,” says Makris. “Eventually, we’ll need to step back and consider the merchant's needs end-to-end. Solutions are beginning to hit the market, so progress is being made.”
One solution is Viva Wallet’s Tap on Phone application that turns any Android device into a card terminal. It supports international card schemes, as well as local card schemes and payment methods such as CB, Bancontact, Payconiq and others.
Makris says this means any merchant can use any Android phone and turn it into a fast, secure, frictionless POS device — also allowing shop employees to act as moving customer checkout points.
According to a study by 451 Research, legacy payment systems routinely decline one in seven transactions. In an economy where every sale counts, this is only hastening the importance of flexible solutions that bring different payment methods under one roof.
“Now a merchant can use any mobile device as a cash register, ordering machine or payment tool,” says Makris. “We’ve also released a software development kit so users can build on our platform.”
Makris also points to Viva Wallet’s Independent Software Vendor (ISV) programme, which allows partners to integrate payments directly into their solutions offering a more seamless experience for end customers.
Where do payments go next?
A recent PwC study laid out five macro trends that will impact payments in Europe over the coming decade. These are inclusion and trust, digital currencies, digital wallets, battle of the rails, cross-border payments and financial crime.
I think if you’re interested in payments, it’s an exciting era to be living through
“My only concern for the payments industry is the increase in capital costs, thanks to rising interest rates and what that means for the raft of all those new buy now, pay later providers that recently hit the market,” says Makris.
But Makris also has more optimistic predictions. “With Tap on Phone technology, we will probably see contactless getting into more applications such as person-to-person money transfers where you tap your phone to another,” he says. “Or even blending contactless with account-to-account payments. Cross-border payments are also being worked on as markets become more global.”
Makris adds it’s also likely that we’ll see some consolidation in the payments market due to oversaturation. Payments will also become increasingly invisible, such as Tesco's checkout-free stores.“I think if you’re interested in payments, it’s an exciting era to be living through — and in just five years the landscape is going to be very different,” says Makris.
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