Do We Still Need to Pay?
By Teresa Connors
Head of Market Engagement, RBS
With frictionless payments embedded into buying experiences, do we still need to pay?
We might say “Yes” without batting an eyelid. However, the response begs further questions. Namely, why do we still need to pay? And why does it matter? After all, we don’t inherently receive pleasure from the act of making a payment. We hardly choose to spend our weekends making payments for the sake of it. The London Business School’s Associate Professor of Organizational Behaviour, Niro Sivanathan, went as far as saying that “Parting with cash is psychologically painful”.
The reality is that we make payments for exchange satisfaction. I give you money; you give me something to consume. From an employer’s perspective, you give me labour; I pay you a salary which you can spend (or save, or both). As technology makes this dynamic more fluid, the significant question is, must we feel like we are paying? This chapter will explore how technology has changed the process of exchange satisfaction, asserting that trust determines the extent to which we can detach from the sensation of making or receiving a payment.
Sweets in hand and £5/€5/$5 note poised, you marched towards the till to pay. Approaching the shopkeeper, you gave them your note, collected the appropriate change and received your receipt.
Intrinsic to those simple steps are the fundamental principles of a payment. Firstly, it was secure . There was no malicious third party who stole the money as you handed it over. Secondly, it was authorized. Upon being handed the note, the money belonged to the shopkeeper. Thirdly, the merchant was identifiable .
There was no false shopkeeper standing behind a pretend till. Fourthly, it was verifiable . You received a receipt to prove you had made the transaction. Finally, the note was valuable . You and the shopkeeper existed in a society that socially accepted, albeit implicitly, the value of a currency note. These fundamental principles simultaneously enabled you to pay for the sweets and the shopkeeper to receive the money.
Technology Today Enables Greater Purchases
Fast forward to today and the payment experience is very different. Your payment is no longer restricted to the cash in your hand. In a largely cashless society, your limit is the amount available in your bank or payment account. On a shelf by the till, a brownie might coax you into spending more than you can truly afford. Granted, perhaps spending all of that currency note back in the day might also have stretched you beyond what was prudently affordable. But there was an objective physical limit. In today’s society, frictionless card and mobile phone payments drive impulse purchases, and the lack of a physical limit facilitates an increase in spending.
Responsibility Lies with the Industry
Even if there isn’t enough money in your account, within minutes you can borrow money via an app while standing in the store. Advancements in payment technology have undeniably changed our spending habits. Contactless cards and online shopping make consumption easier than ever, and losing track of your spending can be a stressful consequence. As an industry we must not lose sight of this, taking responsibility to ensure all our customers feel the benefits of frictionless payments.
Some businesses would also object to frictionless payments, although for different reasons. Take the corporate treasurer, responsible for making multi-million GBP payments. With figures like these, security is prioritized over ease. If friction is required to ensure that errors are difficult to make and the payment is safe, then so be it. There is undoubtedly a demand for a degree of automation. But it is important to note that the more valuable the payment, the more caution is exercised. In this scenario, the frictional sensation of making a payment matters in order to guarantee the correct due diligence has been applied in the process.
Powerful Technology Empowers
However, let us not forget the billions of people that benefit from frictionless payments. The vast majority of consumers are empowered by technology, having the liberty to spend what they want as supposed to what they physically can at that moment.
With prudent financial management and awareness of what makes you happy, buying what you want transposes into buying what you should. Moreover, online shopping means you can have the exchange satisfaction experience from the comfort of your own home. On the other side of the till, retailers also gain. Not searching for change means shopkeepers can serve more customers.
Self-checkout tills drive cost reduction while still facilitating the exchange satisfaction. For many mobile apps, application programming interfaces (APIs) have enabled payments to be so integrated into the customer journey that users do not even need to leave the app. In these cases, detachment from the sensation of payment leads to easier lives and economic prosperity.
Technology, Payments and Trust
In our digital world, how has technology impacted the fundamental principles of a payment? Payments remain indispensable, but digital has allowed us to make them with less time and effort.
The most significant driver of technology to emerge since our time in the shop of old is trust. We believe our online payment is secure because we trust our bank to safely transfer funds without thirdparty interference. Our payments are authorized because we trust our banks to have the technology to debit our account and credit the retailer. When paying via contactless card, we trust that the card terminal corresponds to the identity of the merchant. During an online shop, we trust that the retailer will e-mail us the receipt to make that payment verifiable . Finally, as a society we implicitly consent that our mainstream digital currency will remain valuable and trust each other to maintain this status quo.
Given that the act of making a digital payment is more complex and hidden than exchanging cash, trust becomes crucial. As an everyday consumer, satisfying these fundamental principles probably won’t keep you up at night. In the shoes of the corporate treasurer, they are essential.
Overall, the conclusion is unambiguous. Do we still need to pay? With the plethora of individuals and organizations, we must feel the sensation of making a payment insofar as the process gives us reason to trust that our money will be exchanged in return for what we desire to receive from a transaction. Therein lays the essence of a payment.