Smartphones set to dominate digital payments

If cash is king, there’s a revolution in the land.

Plastic started to dislodge cash from its throne, now smartphones and online payments are set to finish the job.

Reserve Bank figures show ATM withdrawals peaked at in 2009-10 and have been on the slide ever since.

And more than three out of four face-to-face payments are now estimated to be tap and go, according to Leila Fourie, the chief executive of the n Payments Association.

Increasingly that means tapping a smartphone rather than a credit or debit card.

Cash is falling out of favour in other ways too.

The rise of the subscription economy is a big trend, where goods and services and paid by direct debit.

For example, a subscription to Netflix or Stan has supplanted the video store, gym memberships are on rolling monthly payments, while companies such Aussie Farmers Direct or Hello Fresh are providing different ways to shop for groceries.

Mike Ebstein, the founder of payments consultant MWE Consulting, estimates that recurring direct debit payments would be about 10 per cent of of the value of credit card payments.

Meanwhile, in-app payments such as in rideshare and taxi services Uber and GoCatch provide yet another way to do away with cash.

And pretty soon the Reserve Bank’s New Payments Platform will make electronic payments from bank account to bank account even faster and easier, meaning you’ll be able to pay online for that secondhand fridge at a garage sale on a Saturday.

But who benefits from the decrease in cash? Electronic payments are convenient for consumers, but is there a downside?

Mark McCrindle, a social researcher with his own consultancy, McCrindle Research, says the convenience can come at a cost as “out of sight is out of mind”.

“It is all around us, with tollway e-tags, for example, where there is a bip but most people are not aware of how much they are paying,” he says.

“There’s not that ‘point of pain’ of paying with cash that has a psychological impact of making us aware that we are now poorer having made that transaction.” Game of phones

The major drawcard for contactless payments is convenience, including the ability to use a credit or debit card for small amounts and the efficiency of the transaction.

With Visa payWave and MasterCard PayPass, consumers can ‘tap and go’ for everyday transactions, up to $100 a time, without the need to enter a PIN or sign a receipt.

Smartphones are the next frontier in contactless payments with the big tech companies coming out with apps that allow payments without even require opening the app or unlocking the device.

is one of the leading countries in the world for smartphone uptake, with more than four out of five people owning a device, according to Deloitte for its Mobile Consumer Survey in 2016. That’s up from up from three out of four in 2014. ???

Elizabeth Barry, 26 from Sydney’s Zetland, uses CommBank’s contactless app, which has replaced its earlier app, Kaching, for everyday transactions.

“I use my phone for pretty much all of my smaller payments like grocery shopping. I find it more convenient taking my phone out than taking a card out,” Barry says.

Barry has a Samsung phone and she can put a short-cut on the phone screen but she prefers to log-in to make sure that she is making the payment correctly.

“It’s all really easy – I don’t remember the last time I logged-on for internet banking,” she says.

A senior writer with comparison site Finder, Barry doesn’t shop too much online and when she does she prefers to use PayPal if it is available, because it’s easy and PayPal will refund her money if something goes wrong. Cash not dead

However, not everyone is a winner from the shift. It is having a detrimental effect on waiters’ tips and charities that solicit cash donations from passers-by on the streets.

According to a survey of 2000 people, commissioned by ME Bank, those who pay with a card or smartphone are less likely to pay tips to waiters or to donate to a charity in the street.

Nic Emery, the ME head of deposits and transactional banking, says the move to digital money also excludes people who do not have a bank account, which sometimes includes the poorest people.

Though use of cash is slowing, cash is not dead. In fact, it’s going to remain part of the n economy and the payment system for the foreseeable future, says the Reserve Bank in its December 2016 Quarter Bulletin.

The Reserve Bank’s Consumer Use Survey of 2013, the latest available, found that about one in 10 respondents said they make all of their in-person payments with cash.

And cash remains an important store of value.

About three out of four people told the survey they held cash in places other than their “wallets”. Following day-to-day transactions, the next most-cited reason for storing cash was to cover emergencies.

McCrindle says tapping a smartphone connected to a credit card tends to loosen people’s natural restraint.

He points out that the ratio of household debt to income is the highest it’s ever been, and the January crunch from Christmas spending is now happening year round.

“It’s going beyond the budget and living in a financial fog, tapping here there and everywhere, making it harder to manage money,” he says. Which app?

Tech experts predict digital “wallets” will soon be used not only in place of cash, but for paying for all sorts of things such as travel tickets and passes.

Tech companies are seeking to strike deals with as many banks, card providers, retail chains and big providers of services as possible.

Apple Pay app is probably the market leader, though it is the only app that works with the iPhone’s “near-field communications”, which communicates with payment terminals, says Alex Kidman, tech expert at Finder.

It allows payments on an iPhone, Apple Watch, iPad or Mac using Visa, MasterCard and American Express debit and credit cards.

ANZ has entered into a deal with Apple to use Apple Pay, as has several smaller banks and credit unions.

Android Pay is probably the next most popular. It can be used by any smartphone using the Android operating system – such as popular Samsung, HTC and Google models – and works with those financial institutions who support it.

Android Pay supports MasterCard, Visa and American Express credit and debit cards.

Android Pay can be used on an ever-growing number of stores, including 7-11, Coles, McDonald’s and some government agencies.

PayPal remains the middleman for online payments for many online retailers, including eBay. Security

Trying to remember passwords is becoming a frustration of the past as biometric scanning gains traction.

Technology that involves our own money is always something that’s likely to make us nervous, but the reality is that smartphones can be significantly more secure, Kidman says.

Most mobile payment systems will allow you to use a PIN if that’s your desire, but payment by smartphone-apps like Apple Pay, Android Pay and Samsung Pay offer an additional level of security, provided your device is protected with fingerprint scanning.

These use your fingerprint to pre-enrol onto the device as an additional layer of authentication. Kidman says even if your phone is lost or stolen, thieves can’t use it for contactless payments.

“Your fingerprint data is stored securely on the device itself, so there are no worries about your biometric data being stored or illicitly accessed online,” he says.

Smartphone payment systems work like PayPal in that the details of your card do not go to the retailer. Instead, a one-time token is generated for each purchase. Warning for travellers

Travellers have to be careful and remember to carry more cash and cards with old technology, because contactless payments are not as widely used overseas as they are .

“You may see a sign that indicates Apple Pay or Android Pay compatibility, but it’s not a guarantee that when it comes time to tap the transaction will go through,” Kidman says.

“It’s wise to always travel with a card that can handle contactless, chip and PIN, magnetic stripe and even signature verification,” Kidman says. That is particularly the case in the United States, where many smaller retailers still use signature verification.