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Contact. Less is More

Contactless payments are booming. According to a survey from the UK Cards Association, contactless transactions accounted for £25 billion in spending during 2016, compared with just £7.75 billion in 2015. In 2016, UK consumers made a staggering 2.9 billion contactless payments and the number is only growing – in January of that year, one in seven card payments were contactless; by November, that figure had risen to one in four. So what’s driving this massive uptick? In the past, there’s been a sense that the contactless revolution was something that was driven mainly by people in London. Certainly, TfL’s adoption of contactless played a major part in popularising the technology, and it’s now easy to see Oyster cards being phased out altogether.

Millennial Market Makers

But uptake of contactless has now spread far beyond the M25. UK Cards Association figures suggest that there are now over 100 million contactless cards in issue in the UK, up by 25 percent on a year ago. Part of this is due to the raising of the £20 transaction limit, which has made contactless even more useful. But at its heart, the uptick has been driven by millennials. They’re tech savvy, they’re clued up, and they’re far more responsible than they’re given credit for. They know about debt, for example, in a way that previous generations did not, simply because they have student loans. They want convenience above all, and they know where to find it. And, in the world of internet-based infinite choice, they’re used to shopping around: they want banking services that work for them. I chose my first bank account not because I knew anything about how it worked, but because it came with a free Discman. Those days are over.

The Death of Plastic

But in fact, contactless payments are only a stepping stone. As The Telegraph wrote back in May 2016, “cards are on borrowed time.” Soon, we won’t be paying with plastic at all – instead, we’ll simply be tapping our phones. Mobile payments are about to hit their stride. Apple recently reported a 500% year-on-year increase in payments made using their Apple Pay app, and the Android equivalent isn’t far behind. Physical cards’ days are numbered. This is wholeheartedly a good thing for consumers. Why should we bother carrying half a dozen cards around when we can store all of our data on the device we have in our pocket at all times? And just as importantly, who could argue with new technology that reduces friction in transactions, making supermarket, pub, or restaurant payments quicker for both customers and businesses? But perhaps more importantly, mobile payments offer great new ways to keep track of spending. There’s a common complaint that contactless has made it easy to overspend, but mobile apps greatly reduce this risk by offering an instant, searchable record of transactions. Some services even provide push notifications when payments or made, or when customers are approaching balance limits.

Beer on tap

But mobile payments aren’t quite there yet. It’s still a novelty to see someone paying for a pint with their phone, or even (whisper it) their smartwatch. So what’s holding mobile payments back? In great part, resistance to mobile is down to an issue of trust. We trust our banks implicitly – even though, since Northern Rock, the basis of that trust might sometimes be questionable. People are less inclined to trust Apple, a tech company, than they are Barclays or Lloyds.

Challengers Rising

But I’m confident that this is going to change, and again, it’s millennials driving this shift. New ‘challenger banks’ have enjoyed massive uptake among tech-savvy younger consumers who value convenience and control over the stuffy restrictions of a staid financial industry. The internet has vastly increased transparency in what has historically been an opaque world, and this will be the primary driver of change in banking in the coming few years. Millennials have grown up with that transparency, and now they demand it. They’ll be leading the move to mobile payment, and I’m sure they will be dragging the rest of the population with them. Millennials are the most financially clued up generation in history. They ‘get it’, and they’re not willing to settle for second best. If we all want better deals and a more forward-thinking banking industry, we’d do well to follow their lead.

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