The Future of Credit Cards: Payment Trends 2021

As technology advances, the way we pay shifts and changes. Barter, cash, cheque, card. As one method of payment goes out, another comes in.

Take cheques, for example. It wasn’t so very long ago that writing cheques was the norm. Now, you’d probably have to think pretty hard to remember the last time you even saw one. Most of us couldn’t imagine carrying a notebook of paper around. Instead, we whip out our smartphones, and think nothing of tapping to pay using facial recognition.

So, where will the world of payments wind its way to next? In this post, we’re going to check out some of the developing trends within the payments industry, moving on from cashless payments to biometrics, to getting your pay on demand, QR codes and beyond.

Going Cashless

Even before COVID, Australia was a country moving ever forward to cashlessness. In fact, some predicted we would be entirely cashless by 2022. While that timeline seems somewhat unlikely, there are many more Aussies now who have gone cashless as a result of the pandemic.

According to a JD Power survey carried out in the middle of last year, nearly a third of participants said they avoided cash due to the fear it may spread COVID. A quarter of respondents also said they used ATMs less, while a quarter said they were using mobile payments such as Apple Pay and Samsung Pay more.

After issuing a warning regarding the use of cash during the initial outbreak, the World Health Organisation walked that warning back, going on to say banknotes were no more likely than any other surface to carry the virus. But by that time, the damage was already done.

Investigating the use of Square in Australia in the first half of 2020, a report entitled Cashless Payments and the Pandemic in Australia revealed that one in three Aussie businesses went cashless throughout that period, accepting 95% or more transactions through debit or credit cards. (1)

Looking at the different states and territories, the ACT experienced the biggest drop in cash payments. While cash accounted for 42% of the ACT’s sales in January, this fell to just 14% in April. In NSW, cash payments fell from 37% to 16%, in Queensland 35% to 15%, and in South Australia 40% to 17%.

With fewer people paying with cash, ATM use fell as a result. According to the Australian Payments Network, there were 25,719 ATMs in June 2020, compared to 27,870 ATMs in March – a drop of 2,151 ATMs. It is worth pointing out that the number of ATMs in use increased towards the end of the year as lockdowns eased, bringing the total back up to 26,887. (2)

As for cashless payments though, they seem to be here to stay.

In an interview with Business Insider Australia, former American Express director Phil Pomford, said, “Australia has been headed away from cash for a long time and, compared with other countries, is a lot further along that journey”.

“Before the pandemic started, we were already expecting cash to undergo a steep decline to less than 5% of total transactions.”

“There’s been this real drive towards digital payments which is a matter of convenience. Everyone with a mobile phone is walking around with a digital wallet in their pocket. At the end of the day, people just want frictionless simple payments.” (3)

Biometric Payments

When we pay with our phone, it typically uses biometric authentication – either in the form of fingerprint, iris, voice or facial recognition – to process the transaction. So, given the surge in cashless payments, it’s perhaps no surprise that biometric payments are also on the rise.

According to a study from Juniper Research, contactless mobile payments will be a major driver of increased biometrics use over the coming years, with the number of contactless mobile transactions secured by biometrics expected to increase by over 520% between 2020 and 2025.

Overall, the research showed that biometric payments were used to authenticate $404 billion in payment transactions in 2020. However, that number is expected to grow to $3 trillion by 2025.

Biometric Microchipping

While much of that growth is indeed expected to come from mobile payments, biometric authentication may move in other directions as well. According to a Worldpay Generation Pay report released at the end of last year, biometric microchipping may become the next payment trend. (4)

The report revealed that overall, 17% of Australians would choose to have a microchip implanted in their hand to allow them to make payments. Unsurprisingly, there was something of a generational divide within the results. While 25% of Gen Z, 24% of Gen Y and 16% of Gen X said they’d use a biometric payment microchip, only 7% of Baby Boomers said they’d adopt the technology.

Elsewhere in the world, the report revealed those in the UK and US were not as keen as us Aussies on trying out this form of payment. However, China suggested an even greater rate of adoption. Within the Gen Z age group, only 15% of those in the UK and US said they would use a microchip, compared to 49% of Gen Z-ers located in China.

Meanwhile, in Sweden, there are already thousands who have chosen to have microchips implanted in their hands. At the moment, these microchips can be used within a number of settings, allowing users to open e-doors and access public transport and gyms, and to provide identification and medical information when scanned.

While payment by microchip is not yet available, the technology and infrastructure is there. And, given the fact that Sweden is even further ahead than Australia in its race towards cashlessness, microchip payments may be introduced in the not too distant future.

Voice Payments

Slightly less invasive, voice payments are also set to increase in popularity, creating another way to pay using biometric authentication. The Worldpay report indicated 23% of Aussie Gen Z-ers are interested in making voice payments, while 40% of Australians overall would welcome in-car voice payment solutions to make payments while driving.

Back to Phil Pomford, who now works as General Manager for Global eCommerce APAC at Worldpay. “This is really just the beginning and we anticipate that further innovations in this area, including voice-activated commerce, will continue to become more widely adopted by the mainstream public,” he said.

An example of how voice payments might be integrated into everyday life? It could involve asking your smart speaker to order groceries from the supermarket, or telling Siri to access your banking app and send cash to someone you just split the bill with over lunch.

More Diversified Payment Options

With so many of us locked down through 2020, it’s perhaps no surprise that we turned to online shopping to soothe our spirits with retail therapy. Responding to this surge in demand, retailers had to work hard to keep up – not only in terms of their physical offering, but in the ways their customers could pay.

Providing his take on this in a recent Entrepreneur article, Santiago Egas, senior vice president and general manager of BPC Banking Technologies, said there would be a growing demand for new digital payment methods capable of meeting not only the diverse needs of customers – both online and in person – but their safety and security concerns as well. (5)

He pointed to the potential of developing pay-on-delivery, ‘tokenisation’, biometric fingerprint cards and phone-to-phone payments as ways these needs could be met.

Buy Now, Pay Later

On a more immediate level perhaps, there is buy now pay later. As a consumer, you would have had to be living under a rock to miss the rise and rise of BNPL services over the past year. From Afterpay and Zip, to Klarna and Humm, BNPL is everywhere.

In Australia, recent RFi data suggests awareness of BNPL is almost universal. As many as 92% of all Australian adults say they are familiar with a BNPL brand, and almost one in three have used a BNPL service. (6)

While consumers may be drawn to the ‘no-cost’ aspect of BNPL, merchants – who ultimately fund the model – manage to offset their costs with what BNPL provides in return. From an increased average basket price and lower checkout abandonment, to access to an expanded customer base and higher repeat customer ratios, it seems to be win-win for all involved.

Or, maybe not. According to a review by Australia’s corporate watchdog ASIC (the Australian Securities and Investments Commission), one in five BNPL users are missing payments. The report also revealed that over the period of a year, missed payment fee revenue for all of the BNPL providers ASIC looked at increased 38% to $43 million.

During the 2018-19 financial year, late fees made up 20% of Afterpay’s revenue, with the balance coming from merchant fees, while Zip got most of its revenue from other fees charged to customers.

“From our research, we also found that some consumers who use buy now, pay later arrangements are experiencing financial hardship, such as cutting back on or going without essentials – for example meals – or taking out additional loans, in order to make their buy now, pay later payments on time,” the report stated. (7)

Despite that, ASIC chose not to impose any new regulations on the sector. However, ASIC advised previously announced regulatory changes were coming that would impact the industry, which would come into effect in October 2021.

With these changes, you as a consumer and BNPL user may see some adjustments in the way BNPL platforms go about their business, including the way in which fees are applied.

Big Banks & BNPL Get Closer

But, that may not be the only changes you see within BNPL. Let’s step back a bit.

In the world of payments, the big banks ruled it all. Until BNPL came along that is. When Afterpay launched in 2014, it appealed to the typically credit-averse younger generation, who jumped at the chance to buy now and pay later, with no interest to drag them down.

Over the years that followed, as more BNPL platforms were introduced – and as big banks lost more ground to them – there was a slow shift in the banks’ attitude towards ‘if you can’t beat them, join them’.

As a result, in the past year we have seen greater integration between big banks and buy now pay later services, where the former has worked to emulate the template of the latter.

A Year of BNPL & Big Bank Integration

At the start of 2020, CommBank launched its own BNPL platform, Klarna. In September, NAB introduced Australia’s first no-interest credit card, the Straight-Up Card. This was followed by the launch of CommBank’s Neo Card, which provided a similar no-interest offering, designed to appeal to BNPL users.

While CommBank’s credit card balances shrunk by 16% through 2020, the bank recently revealed its application volumes were coming back to pre-pandemic levels. CommBank pointed to its Neo Card in thanks to this, with the card now accounting for one third of new CBA credit card applications. This take-up mirrors the interest in NAB’s Straight-Up Card.

Striking out in a different direction, Westpac announced a new partnership with Afterpay in October. Expanding its offering, Afterpay is set to utilise Westpac’s new digital bank-as-a-service platform to provide its users with access to linked savings accounts and banking tools, just like a bank.

Meanwhile, Zip Co made its own way, choosing to partner with big boys outside the Big Four. Partnering with Visa in October, Zip launched its Tap & Zip product, allowing Zip users to pay via Apple Pay or Google Pay, anywhere Visa is accepted – with purchases treated like normal Zip Pay transactions and offered interest-free.

At the end of the year, CommBank introduced AdvancePay, becoming the first big bank to launch a pay-on-demand product. As a short term loan, the feature allows users to choose the amount they want to borrow (up to $750) and the date they want to pay it back. Paying out a small fee, the user then repays the loan on ‘payday’. Interest is only charged if the loan is not repaid on the due date.

The only question now is, where will this increased level of integration take the banks and BNPL next?

QR Code Payments

QR codes have been around for a while now. You may have used one to check in at the airport. Or, perhaps there was one on your ticket when you last went to see a gig or show. Over the past few months, however, you’ve probably seen a lot more QR codes, providing access to COVID-safe check-ins at restaurants, shops and other public places.

But that’s not the only direction QR codes have expanded into. While it may or may not be something you’ve seen first-hand yet, QR codes are now being used to facilitate payments.

How does this work? Using a QR code to pay works in much the same way as using a QR code to check in somewhere. You use your camera app to scan the code, which allows the software in your phone to decode the information and guide you towards payment, either by opening
a browser link, confirming payment information, or verifying your geolocation.

The way in which QR codes can be used within the payment process is pretty flexible. Here are some examples.

Using your phone to scan a retailer’s QR code. This QR code could be displayed at the retailer’s checkout, on individual products, on your bill or elsewhere, allowing you to scan it, and then confirm the price and purchase, where required. You may need to manually type your card details to pay, but this will depend on the payment processor.
Using your phone to display your QR code for the retailer to scan. When you are ready to pay, you access the payment app you want to pay with to reveal your unique QR code. This code is linked to your card details, so when the retailer scans the code, the transaction is finalised.
Using your phone to send a payment from one app to another. Using your phone to transfer money to someone, both you and the recipient start by opening your payment apps. You then scan the QR code on the recipient’s app using your phone, confirm the amount and tap to process the payment.

PayPal QR Codes

PayPal in particular has seen exceptional growth in its use of QR codes over the past year. In an announcement last week, PayPal revealed it now offers QR code payments at more than 600,000 retail locations across the US, having signed up 29 large retailers throughout 2020.

The company also revealed a 19% increase in payment volume for PayPal users who started regularly using QR codes, as well as $20 billion in in-store transactions across its payment types in 2020.

While QR code payments may be slightly slower to take off here in Australia – where NFC payments via the likes of Apple Pay and Samsung Pay do the heavy lifting – they may still find their niche if retailers find a use for them. Especially if staying socially distanced remains a priority.

If you are buying or selling privately, or operating within a small business setting for example, PayPal in particular could make the QR code payment process a viable alternative to card payment transactions.

- If you’re buying something, you simply open the PayPal app on your phone and tap to scan and pay. Then hold your phone up to the retailer’s QR code, enter the amount due, and tap to send the payment. Lastly, show the retailer your payment confirmation and you’re good to go.
- If you’re selling something, start by creating a QR code. This is unique to you, and is linked to your PayPal account. The buyer uses their PayPal app to scan your code, and can then input the amount, and send you the amount due.

While it does have its drawbacks – both parties need to have access to the PayPal app, and the process could feel somewhat clunky to those used to tap-and-pay using NFC – it could work well in certain situations, both for the buyer and the seller.

But, while it allows sellers to take digital payments without investing in costly card processing equipment, it obviously doesn’t come completely without cost. For the buyer, the transaction is free – as is the set-up of the QR code. The seller, however, will pay a fee on each transaction.

Want to find out more about payment trends and new tech within the industry? Check out our follow-up post next week.