It’s an easy and free way to source cash - as long as you remember to pay the credit card bill on time.
"What’s new is simply the means by which to facilitate the choice of paying before, paying now or paying later.”
Lately though the ruse has been less successful. Too often fellow diners don’t have cash either and want to reimburse you electronically through a service like PayID on a mobile phone.
It’s a Brave New World… but how much does this anecdote reflect a truly new world of payments? True, my cash out scheme doesn’t work so well and yes it is a demonstration of a new payment universe.
But what is actually different here? In our typical group of diners, some are electing to pay now - those who give me cash. Some are electing to pay later - those who promise to PayID me. The merchant is opting to lessen the risks of theft, cash handling and delayed payment by accepting my credit card.
So what’s new is simply the means by which to facilitate the choice of paying before, paying now or paying later.
I want it now
The traditional “pay before” mechanisms are products like gift cards or positive balances in a public transport card or tollway system. Paying before is not free, typically around 30 per cent of the value of gift cards is never spent; money paid in advance to a tollway is dead money, providing no benefit or return before it is used.
Cash is the obvious “pay now” system but so are debit cards, which take money immediately from your account, and direct debits.
Credit is the fundamental method to “pay later”. Maybe with a loan, a credit card or a “buy now, pay later” scheme like AfterPay, Zip or Klarna.
Regardless of the tool, be it crypto, physical, digital, bank, non-bank, any payment fits one of these types. Pay before, be that gift cards, pre-paid telecoms, subscriptions, is growing but the other tenors are not disappearing. In pay now, while cash and cheques are declining, debit is growing. Credit cards may be ceding ground to debit cards but buy now, pay later has emerged and household indebtedness is at record levels - which means more people are electing more often to pay later.
So where is this payments revolution taking place? It is in the process of paying, the institutions which produce payment instruments, monitor security, authorise transactions, manage merchants and customers, settle payments.
In the plumbing of the system.
According to Accenture’s Alex Trott “the payments market is booming and there’s a multi-billion-dollar opportunity for those willing to invest in new technologies and business models based on the new digital landscape ahead”.
Incumbents beware: “banks lagging behind risk being relegated to the plumbing of payments. The digital transformation underway in payments will have a deep impact on all industry players and banks will have to fundamentally change how they think about their revenue in this area.”
Accenture’s latest Global Payments Pulse Survey forecasts global payments revenue is likely to grow at a compound annual growth rate of 5.5 per cent to $US2 trillion over the next six years.
Consumer payments account for 58 per cent of this total revenue and are expected to grow at 5.1 per cent by 2025; corporate payments comprise the rest and are expected to grow at a slightly faster 6.1 per cent. Non-cash transactions are expected to grow at 5.0 per cent over the same period.
This projected growth is offering banks that operate in the payments industry the chance to grab $US500 billion in incremental revenue.