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The death of a payment instrument

Categories : Uncategorized
August 1, 2016
Tags : Cash substitution, Electronic, Innovation, Mobile Payments, Universality
Payment instruments disappear. And this has far-reaching implications.
Guillaume Lepecq

When Apple CEO Tim Cook launched ApplePay in October 2014, he boldly predicted the death of cash and announced “the next generation of children will not know what money is.” Almost two years later, cash volumes are growing healthily in the vast majority of markets. In the US, the value of notes in circulation increased by 6.2% in 2015 according the Federal Reserve System Annual Report.  Even in Norway, often described as being on the verge of cashlessness, the value of notes and coins in circulation grew by 1.5% in 2015. In India, the figure is 12.9%.

ApplePay below expectations

As for Apple Pay, it has not quite lived up to the hype it generated when it was launched. Apple does not release transaction data but according to who monitors consumer usage of Apple Pay, in October 2015, a year after its launch, 16.6% of those who were eligible – i.e. owned an iPhone 6 or 6s – have tried ApplePay in the US. But actual usage is even lower: only 5.1% of eligible transactions – i.e. iPhone 6/6S holders in front of an Apple compliant POS terminal – are actually paid with ApplePay. According to, “It appears that people are not finding enough value and are choosing other methods of payment instead, which are cards, and, interestingly, cash.” Nevertheless, ApplePay is still chugging along and has been launched in 8 additional countries since its US debut: UK, Canada, Australia, China, Singapore, Switzerland, France and Hong-Kong.

Meanwhile other payment instruments have simply disappeared. In New Zealand, Semble, a joint venture established by the leading banks and telcos in 2012, offering mobile payments is shutting down in August. In Norway, mobile payments service Valyou, started by DNB and Telenor, discontinued operations in November 2015 as a result of lower than expected activation of NFC-enabled POS terminals and slow consumer adoption.  In the Netherlands, Chipknip, an electronic cash system, which was launched in 1996 and had reached 165 million transactions in 2006, was closed in January 2015, by the interbank organisation Currence, following a decline in transaction volumes. Paypal, has announced that as of June 6 2016, transactions will no longer be fulfilled in Turkey following the rejection of its payment licence. As in the case of PayPal, who advertised at the last Superbowl claiming “There is new money in town”, many of these payment systems were targeting cash substitution as their key selling proposition.

Does it matter?

Does is matter if payment providers disappear? After all, there are, in principle, competing solutions in place. And failure is a perfectly normal process in an innovative industry. Joseph Schumpeter coined the term creative destruction. However, there are specific aspects of the payments industry, which need to be taken into consideration.

Firstly, there are costs involved and not only for those who invest in the new technology but also for those who use it. Merchants incur costs when they adopt a new payment solution: deploying new terminals, integrating with existing systems, training staff, reconciliation not to mention the fees levied by the provider. If the solution fails, those investments are lost.

Secondly, the multiplication of payment options reduces interoperability and ease of use. Payment instruments are growing increasingly specialised and dedicated to a specific channel such as online payments, a specific spending category such as travel, or a specific merchant. If you give up on your physical wallet for a virtual one, you’ll first need to select a replacement: Apple Pay, Android pay or Samsung Pay. Then start uploading apps: P2P apps like, Venmo, PayPal or Square; transit apps like Uber and Lyft, not to mention NJ transit in New Jersey, Oyster in London, or Octopus in Hong-Kong. You will also need merchant apps such as Starbucks, Walmart, Exxon, Shell Motorist. Who said that mobile payments were simpler?

Thirdly, the dismantling of a payment solution can also generate costs. This is best illustrated by CNN journalist Robyn Curnow who in the name of payments research was implanted with a sub-dermal RFID chip and then had it removed. The chip was first used as a payment solution at Barcelona night club Baja Beach Club in 2004.  Having the chip removed required two doctor consults, an X-ray and surgery. She keeps an 8 mm scar as a reminder of this unique payment experience. So much for frictionless payments.

Perhaps most importantly, the death of these payment instruments demonstrates the need for a system, which is efficient, universally accepted and here to last. Let’s call it cash.