“Card or cash?” This phrase, which has long been used in all types of companies to pay for goods and services, may have its days numbered. Due to the declining use of physical money to pay for purchases and the emergence of new payment methods and platforms that are completely changing the landscape.
According to the Bank of Spain, although cash remains the preferred payment method for Spaniards in physical commerce (65% of purchases are still made this way), alternative payment methods are on the rise. Obviously, a lot has to do with online purchases (although you can sometimes pay cash on delivery, it's more common to pay with other systems). In fact, almost 40% of payments are made through cashless methods.
My cell phone, my wallet
Digital payments or mobile devices are key drivers of innovation in payments. In fact, smartphones and technology have radically changed the landscape of payment methods, as it only takes a few touches on a screen (or none at all) to perform the same function that previously required cash or physical cards.
A good part of the success of these systems is that they are very convenient and fast, as well as the high penetration of mobile phones among people. Apps like Apple Pay, Google Wallet and Samsung Pay allow users to link their credit or debit cards to their phones, facilitating contactless transactions. Additionally, peer-to-peer payment apps (like Bism) simplify the way people exchange money, eliminating the need to carry cash.
“Our platform integrates various payment options, from NFC technology for contactless payments to sending money between friends, splitting bills and conversations through our Revolut Chat. “We are constantly expanding our capabilities to provide a better experience for our users,” says Ignacio Zunzunegui, head of development for Southern Europe at Revolut, one of the startups revolutionizing the fintech world. The same person points out that digital wallets (on mobile phones) are one of the most used options by their users. “Another very valuable one is the single-use virtual cards, which are suitable for online purchases, because they are created immediately in the application, and once used, there is no problem of data theft or many other. Third-party pages, the user is protected.”
Mobile transactions use technologies such as tokenization and biometric authentication to protect user information. Additionally, if the phone is lost, users can remotely lock their payment apps, which is not possible with cards.
What's more: Mobile payments have had a significant impact on financial inclusion. In developing countries, where banking infrastructure may be limited, mobile payments allow people to carry out financial transactions without the need for a traditional bank account.
New models
With the rise of new technologies, payment options, though previously viable, cost more time and paperwork to process. And that's not always possible.
One of them is Buy Now Pay Later (BNPL) or Buy Now Pay Later. BNPL is marked front and back across Europe. According to a study conducted by Kantar for FLOA, 47% of European consumers use this tool, and in Spain, this percentage is even higher, with 63% of Spaniards using deferred payment. This trend continues to grow and has become a criterion when choosing a brand.
These options led one of the major European startups, Klarna, to become a fintech company specializing in deferred payments under the “Buy Now, Pay Later” format. The Swedish startup reached its peak valuation in 2021 when it was said to be worth $45.6 billion, positioning itself as the world's second most valuable fintech and a symbol of the sector's rise.
However, when its funding round closed in July 2022, Klarna's situation changed dramatically as its valuation was slashed by 85% to $6.7 billion. It is true that this adjustment was due not only to the company's internal challenges, but also to an adverse macroeconomic environment marked by high inflation, rising interest rates, and geopolitical tensions heightened by the war in Ukraine and gas price problems. The company closed its banking subsidiary in Spain in March. The decision comes as part of a global effort to “simplify” the financial body's legal framework. Nevertheless, Klarna assured that the closure of the subsidiary “will have no impact on the operations in Spain”. The company did not respond to our queries.
For now, Klarna managed to halve its losses in the first quarter and is hopeful of returning to profitability by the end of the year. Its estimate is three times higher than in 2018.
Buy Save
Another mobile payment option offers the opposite alternative: save now and buy later. With this platform-turned-system, customers are encouraged to save while shopping. Thanks to the various features and functions of these platforms, consumers can set their own savings goals and, once achieved, make it easier for them to make purchases, sometimes adding exclusive offers to these purchases.
But there are many systems that are changing the landscape of payment and collection systems worldwide, such as the fact that a mobile phone can be used as a POS (Point of Sale Terminal) thanks to SoftPOS technology. This will allow small businesses that do not yet offer card payments to easily transition to the new payment system.
Without going that far, one of the main (and homegrown) revolutions experienced by the payment system market in Spain was Bizum, an instant payment system that revolutionized the way Spaniards send and receive money through the mobile apps of participating banks. In this setting. It is not an independent application, but rather a function added to the company's application, facilitating money transfers without knowing the recipient's IBAN. Enter the recipient's mobile number and the amount to send. Within seconds, the recipient receives the money.
Bizum not only facilitates transactions between individuals, but also opens up a world of possibilities for e-commerce and donations. With millions of users and growing acceptance, Bizum is positioned as a fundamental pillar in the future of personal finance in Spain and other countries?
“This is one of the focus areas to enable a convenient, fast and secure way to pay with a mobile phone to reach more users, regardless of their country of residence,” explains company president Martin Askew. La Razón of innovation and new projects. Available since last year in Andorra, BANCOMAT (Bancomat Pay, Italy) and SIBS (MB WAY, Portugal) have signed an agreement until the end of 2023 with the leading companies in their respective markets. The aim of this agreement is to connect three major reliable mobile payment solutions for users in these countries. This is with the possibility of other European payment solutions participating in the later stages of this initiative,” he adds.
In addition, Bizum belongs to the European Association of Mobile Payment Systems, which promotes the establishment of a future pan-European mobile payment solution.
Why they succeed
“Consumers look for ease, security and convenience when buying in physical stores or online. Therefore, it is important to understand their buying habits to provide methods that meet their needs,” says Jordi Nebot, CEO and co-founder of PaynoPain “Choosing digital payments is a safer option than using cash, Thanks to the layers of authentication and encryption that accompany these transactions. Additionally, these systems allow detailed tracking of transactions, which makes financial management easier,” he adds.
In this simplification, the project to use QR code to make payments comes from Asia. AliPay+ is operating the system in Europe from the Chinese group Alibaba (owner of AliExpress) and has recently signed up with El Corte Ingles to accept payments through the platform. Pietro Candela, head of Alipay for Europe, explained to La Razón that the method allows payment without transferring money and “we offer the opportunity to access a coupon to redeem the trip or connect it to a user before or after the trip. The final destination has been reached.”
The future of payments
As technology continues to advance, we are likely to see more innovations in payment methods. From cryptocurrency payments to advanced biometrics, the future of payments promises to be as revolutionary as the initial impact of smartphones.
