Transaction puzzling

The Transaction of the Future

Transaction puzzling

How will we carry out transactions in just a few years time?

Ignore the EPCOT-sounding title and think, for a moment, about how transactions in the future are actually going to play out.

Will cash really disappear? How about cards, are they a thing of the past? Is mobile genuinely the future for payments? And what about the world of cryptocurrencies, do they genuinely have a leg to stand on in a future economy?

Ultimately, nobody really knows, it’s generally made through educated guesswork. The one thing that’s certain though, payments need to be ‘frictionless’ – the payments buzzword for 2014. One aspect of improving transactions, be they P2P or just paying for goods is speed. The next-generation of payments will be super-speedy, almost instantaneous, and probably make use of something based on the blockchain system that Bitcoin makes use of.

“I can sit here and make and send an audio or video message in three seconds,” said serial entrepreneur Shakil Khan, who’s invested in the likes of CoinDesk, Spotify, DueDil and more. “But, if I want to pay someone 200 kroner online it’ll cost me $32, and might take four days for the payment to arrive. That makes zero sense, and cryptocurrencies solve this problem.”

And he has a point, just like Matthias Kröner from Fidor stated, the future of banking will revolve around having super-speedy payments and transactions that can happen 24/7. Thanks to the likes of Zapp, which is hitting UK retailers soon, this speed of payment might become a reality in the UK.

While Zapp won’t make use of a payments network like Ripple, instead using the standard FPN, it does reduce transaction time down to just 12 seconds – that’s 2 seconds faster than Amazon’s One-Click ordering system. And the likes of Karna actually looks at what merchants want, as well as customers, and has gone out of its way to simplify the buying process by not even asking for any passwords, registration etc., you click pay and it’s yours – just like handing over cash.

But why does the payments infrastructure need to change anyway?

Khan believes that there’s “a fundamental problem with payments,” and that’s why change needs to happen. For the likes of Peter Keenan from Zapp it’s about “plugging the leaky bucket,” and ensuring that the vulnerability of cards are removed from the equation – after all, nothing has really changed in how a card functions in almost all of its life. Sebastian Siemiatkowski from Klarna has a different thought process on why eCommerce payments need changing, and that’s down to the sheer clumsiness of it all. Entering a 3D Secure password thanks to Verified by Visa/MasterCard system is cumbersome and completely switches off online consumers – his aim is to completely remove that stage.

He has evidence to back his claims up too, with 33 per cent of desktop eCommerce users actually following through with their purchase at checkout, with only 16 per cent doing the same on mobile. That’s abysmal, and that’s largely because of elements like 3D Secure. Since Klarna’s implementation in Sweden, the same sites saw conversion rates increase by over 100 per cent on mobile, and by 30 per cent on desktop. People just don’t want those barriers, and the future of transactions will completely cut them out. Karna also aims to streamline the process for merchants too, allowing them to expand globally to accept payments without needing to get approval from around 40 different providers across Europe.

Zapp works by providing clarity alongside efficiency and security. It not only takes users to the Zapp app on their phone when they click pay with Zapp, but it also lets them see their balance and have it update in real time when they make a purchase. It seems like the ideal solution. The same goes for Klarna too, which allows how to get customers interested in the payments system and make it incredibly simple.

However, the real challenge still lies in improving the transaction experience in-store.

Zapp says that it works in-store through NFC. While that’s all well and good in practice for those of us who have Android and Windows phones, that leaves out a huge chunk of the paying population who own iPhones. This means that there’s a large proportion of people who won’t be able to use NFC, even if they wanted to. It’s unlikely that Apple will buck to the trend of NFC now they’ve set up a near-perfect solution with iBeacon technology, all it’ll take is for Tim Cook to pull the trigger of a full-scale payments infrastructure for almost any competition to be wiped out in the retail payments space – least when it comes to mobile payments.

Either way, it looks that the future of transactions is going to be cheaper for merchants, due to payments being so secure they don’t need to pay for the likes of PCI-DSS – just like merchants who use Zapp don’t – and for separate payments licenses; as well as far faster, easier and more ubiquitous for consumers.

Now we just have to start embracing the technologies that can help us achieve this instead of laughing them aside as nothing more than a newfangled toy.

[Image: chrisowenrichards - Flickr]

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