Of cows and digital payments

In 1796, Dr. Edward Jenner observed that people once infected with cowpox, which is seldom deadly, later tended to prove immune to smallpox, which often is. It was from that observation that Jenner went on to develop a smallpox vaccine.

Hang on to your hat, because I’m about to liken cows to digital payments.

The late eighteenth century dairy industry grew in response to market demand for dairy products. That it would prove crucial to developing a lifesaving vaccine was pure serendipity. Likewise, the current digital payments industry grew in response to market demand, in this case for speed and convenience. That it is now a major part of curbing SARS-CoV-2 transmission is, too, pure serendipity.

According to Square, none other than Coco-Cola debuted the first mobile payment transaction …

… in 1997. The beverage retailer created special vending machines that enabled consumers to pay for their drinks by sending text messages from mobile devices.

Wikipedia confirms Coca-Cola’s innovative vending machine and adds a bit of backstory:

In 1983, a research paper by David Chaum introduced the idea of digital cash. In 1990, he founded DigiCash, an electronic cash company, in Amsterdam … It filed for bankruptcy in 1998. e-gold was the first widely used Internet money, introduced in 1996, and grew to several million users before the US Government shut it down in 2008 … PayPal launched its USD-denominated service in 1998.

The moment the market experienced digital payments convenience, the race was on to see who could deliver the best, the easiest-to-use, the most secure, the most comprehensive, and the fastest. Nor has the race slowed. Today it is less that accepting mobile payments and touchless cards presents a competitive advantage—and more that not accepting them presents a competitive disadvantage.

Digital payments in turn spawned today’s massive gig economy—a term that has existed only for a couple of years. Suddenly people were turning to Lyft and Uber and paying via their respective apps instead of calling cabs. People were ordering restaurant food via GrubHub, DoorDash, and others, and paying via those companies’ respective apps.

Digital payments, touchless cards, and the gig economy caught on because people liked them and, as a result, demanded them. Little did anyone suspect that in the spring of 2020 the entire world would be advised to socially distance, stay home if at all possible, and avoid hand-to-hand contact.

All of which, though difficult enough, would have been all but impossible without a gig economy to deliver needed goods to our door—and without digital payments to obviate the need for tangible currency.

Indeed, prior to the pandemic, McDonald’s came up with an app that let customers pre-order, pay via the app, and pull into a designated parking space where an employee would walk the order to their car. Now, a few months into the pandemic, the McDonald’s innovation has become a widespread, vital health measure, and is generically called “curbside pickup.”

So it is thanks to digital payments that, not by design but by serendipity, as Finextra recently reported, that UK citizens have been able to go …

… an average of 44 days without using cash as they ditch notes and coins for contactless payments during the Covid-19 pandemic, according to a survey from Nationwide Building Society. Of 2000 people polled by Nationwide, more than a quarter have gone two months or more without cash. Nearly a third admit they don’t even remember what they last bought with cash. Meanwhile, the building society’s customer data shows a 44% increase in tap-and-pay transactions since the week of 23 March, when Brits were asked to stay at home.

Only a few years ago, such would not have been possible. What began as a convenience is now a need. Even Boomers, typically last to embrace new technology, are taking advantage of digital payments. PYMTS.com recently reported:

U.S. millennials were early adopters of person-to-person (P2P) payment apps, while Baby Boomers sought out financial institution-based P2P options and older consumers were slow to join in—until now. Fiserv’s Vice President of Product Management Derek Swords told PYMNTS in a recent interview that P2P usage across demographics is on the upswing, especially since the COVID-19 outbreak.

“[The pandemic] is kind of throwing lighter fluid on a fire that was already burning,” he said … “we are seeing new user growth at about 19 percent and transaction growth increasing by roughly 9 percent per month. We’re certainly seeing more people jumping into the pool and starting to take advantage of P2P through their bank or credit union.”

Swords said consumers haven’t just been rethinking their payment methods during weeks of being stuck at home: They’ve radically rewritten their lives to adopt digital solutions for a host of interactions, from work to school to shopping.

And while the post-pandemic recovery is now underway, there’s reason to suspect consumers won’t immediately abandon their digitized lives, Swords said. Digital systems that work better than their pre-pandemic analogs will likely see continued gains — and Swords believes that includes P2P payments.

For example, he said, when consumers use a P2P service like Zelle, which financial institutions can offer to their customers via Fiserv, “more likely than not, they’re going to keep using it because they find that it really meets a need in their lives.”*

What began as gee-whiz technical innovation and caught on by virtue of convenience has, by serendipity, turned out to be a boon to survival. There’s no doubt that by the time the current pandemic subsides, it will have left in its wake substantive societal changes. Handshakes will likely be a thing of the past. Hand washing will be a more frequent habit, at least for a while. And how people conduct business—and, especially, how they pay—will likely never be the same.

*Disclosure: Fiserv is my employer.

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