By Meredith Popolo, editorial strategist at Trustly, explains how advances in digital authentication can drive adoption of alternative payment methods to improve security and the customer experience.
In the past 50 years, the commerce industry has evolved drastically. Whereas people used to shop at the local store, today people buy goods online from all over the world from the comfort of their own homes.
It’s surprising, then, that the methods of payment haven’t evolved nearly as much as to keep up with changing consumer behaviours. Following the birth of the magstripe and the rise of credit and debit cards, it became convenient to pay for goods by simply swiping your card and signing your name. And, as point-of-sale devices and computers became more sophisticated, debit and credit cards quickly started supplanting checks as the preferred method of cashless payment.
Cards can’t keep up with consumers
While credit and debit cards simplified the way consumers could pay in store, they were never really designed to be used online. Typing in a long string of numbers, expiration dates and security codes are time-consuming and inconvenient.
With credit card fraud running rampant, paying online can feel unsafe, especially if you’re shopping on a foreign site. In fact, this deters many Europeans from shopping internationally; for example, about 83% of online shoppers in Spain agreed that they would buy more from international websites if they didn’t have to give their credit or debit card numbers to unknown foreign merchants, according to a 2017 survey conducted by Trustly about online shopping habits among Europeans.
Alternative payments taking hold
More and more Europeans are looking at alternative payment methods to meet their needs for security and convenience. According to Worldpay’s Global Payment Report 2016, both debit cards and credit cards will decrease in percentage of total spend (by 2% and 3%, respectively) across EMEA from 2015 to 2020. And what is replacing them as preferred payment methods? Bank transfers and e-invoices, among others. These methods appeal to younger generations who seek more flexible options of payment that give them greater control over their finances.
Adopting a national digital identification scheme
Spurring the adoption of bank transfers as a preferred payment method are the technological advances enabling safer and more convenient means of authentication. Take a market like Sweden, for example, where bank transfers are one of the most popular methods of payment. While normally in competition with each other, several of Sweden’s largest banks came together in 2003 to create BankID, which is now the leading electronic identification in the country with more than 7.5 million active users. The system allows companies, banks and governments agencies to authenticate individuals digitally. With such a network in place, initiating and authenticating bank payments has become significantly easier than with older systems that required tokens, TANs and other hardware.
Overall, Trustly’s research shows that Europeans are generally satisfied with their authentication methods available, but it’s interesting to note that Swedish consumers have a relatively low satisfactory rating of pushTANs, perhaps because it’s a market where a national scheme exists. Of course, Sweden has a small population compared to other markets surveyed, but such data suggests that if a national electronic identification scheme is developed in other countries, they too will shift payment preferences toward bank transfers due to the enhanced security and convenience.
Tech giants take the wheel
So, what is the bad news? Establishing a national electronic identification scheme can take a vast amount of resources to bring to market, especially in a country with a large population. The good news? Tech giants might be doing the legwork for us. With Apple, Samsung and other technology companies fighting for dominance of the smartphone market, consumers are ultimately winning. Each hardware iteration comes equipped with more and more secure biometric features that could be the key to the widespread adoption of digital authentication.
For example, Apple’s newest iPhone X has a sophisticated TrueDepth camera and sensors that enable Face ID, a feature that lets you unlock your phone using your face. According to Apple, it projects and analyses more than 30,000 invisible dots to create a precise depth map of your face. As these new smartphones start to make their way into every consumer’s pocket, authentication methods will become more secure and convenient than ever before. These hardware advances are what will ultimately drive forward digital authentication, and the payments industry as a whole.
When looking at ecommerce and online payments as a whole, it will be important for businesses to anticipate the needs of consumers across Europe and offer the payment methods that they prefer.
About Meredith Popolo:
Meredith Popolo is the editorial strategist at Trustly, where she reports on trending topics in fintech. Prior to Trustly, she wrote about consumer technology for PCMag.com and about adtech for Google.