The way individuals and businesses exchange value is undergoing a fundamental shift, driven by technology, regulation and changing customer expectations. From our work in this sector, we have developed a deep understanding of citizens’ relationship to money, their expectations when it comes to payments and the challenges when it comes to changing behaviours.
Chapter 1: Secure technology, insecure citizens.
Digital payment ecosystems are coming whether we like it or not. But success in digital payment ecosystems will be dictated by those who can design them in a way that can convince citizens and customers that this world is more, not less, secure, and just as simple. For now, any benefits of the digital payments’ world are outweighed by concerns about safety and security.
At the core of citizens’ payments needs is the competing tension between simplicity and security. Like a set of scales, different initiatives tip the balance one way or the other.
Fundamentally, you can trace payment ease and simplicity across time, right back to money’s origins. Physical money replaced the exchange of goods because it was more convenient, and incremental improvements have occurred since – from coins and notes through to cheques, cards and more recently contactless payments. The next big shift is the provision of a digital currency, to match citizens’ move towards online shopping. Nigeria have already established the eNaira, their digital currency, and 49 other digital currencies are being piloted. The private sector is driving changes to payments too: neobanks are sidestepping regulatory burdens and focussing on customer-centric experiences such as Monzo’s “Nearby Friends” feature; and third-party vendors like Klarna are embedding financial services seamlessly into everyday transactions. These are the first steps in what will ultimately become a bigger shift in the way we make payments. But what do customers actually want?
First, it needs to be simple. Customers adopt new payment methods not because they are revolutionary, but because they’re easier. Take contactless payments as an example. From our work in understanding payment behaviours, we know the three most important benefits to customers were all factors driven by convenience: the speed of transaction; no PIN-entry requirement; and accessibility.
But as part of Yonder’s testing of the EU digital identity wallets – an identity ecosystem for the EU’s 450 million citizens – we identified one of the most desired benefits for citizens was counter-party verification. In other words, making sure the business, retailer or person you are buying from is a real entity. Here there are clear security benefits: citizens can be confident they are avoiding scams and fraud by purchasing from a trusted supplier.
One of the fundamental tenets of EU Digital Identity Wallets is that they will provide greater security for citizens, yet our testing revealed they do not reassure citizens about online safety. Many remain uneasy about moving payments and ID documents into the digital realm, citing Big Tech’s data practices, rising cyber threats, and the risks of consolidating everything on a single device. Similar concerns appeared in our work looking at payment patterns, where trust falls sharply for larger transactions.
The balance currently points to security fears outweighing convenience in the online sphere. And this points to an opportunity for businesses: to profit where security concerns may exist by helping citizens more easily navigate the digital world of payments. Through time, security has always been a concern when it comes to money, often mitigated by symbols and techniques. For instance, watermarks are used on bank notes and trustmarks on payment cards. But what could be the verification symbol of the future? And what forms of user experience would truly reassure citizens?
The gap is widening between the reality of what the technology will provide (greater online security), and citizens’ perception of the technology (lack of online security). In time, we will see how governments, and companies, respond in trying to fix the disconnect and convince citizens of the necessity of new tools like digital identity wallets or digital currencies and the security they offer in the face of AI and disinformation. This change will not happen overnight, but the rapid pace of technological change is putting increasing pressure on governments and businesses to act now.
Stay tuned for chapter 2 of the series…