COMMENTARY: From the Unbanked to the Digerati, Banks Must Decode the New Payments Landscape

Amid one of the greatest crises in a century, the way we execute commerce and pay for goods and services has seen an acceleration that will be with us long after we return to some semblance of normalcy.

The Covid-19 pandemic has accelerated by five years or more the adoption and use of contactless payments, bringing a sea of changes in what it means to go grocery shopping or swipe our cards at a physical register. As the economy accelerates, a portion of this behavior will pivot back to more traditional forms of payment. However, the prolonged pandemic disruption indicates that recent payments/commerce habits are likely now entrenched. 

The ongoing reluctance to adopt new technologies, often among older generations, has been quickly overcome by the safety that these remote services offer. For example, delivery services with e-commerce providers like Amazon, and curbside pickup for in-person commerce at Walmart.com, have skyrocketed in popularity due to their convenience and safety. Consumers are able to achieve what is closest to an in-store experience in the comfort of their homes. 

But will the slower adopters of these services revert to in-person? Some may, but many will also adopt the convenience and simplicity that these new experiences offer. This behavior has placed a much stronger emphasis on card-on-file transactions as a safer and easier-to-use option for both consumers and merchants.  

Cashless payments are safer, cleaner, and more efficient. The movement to cashless, however, can present challenges to under- and unbanked consumers. These people are used to paying in cash or with prepaid cards, so new methods of commerce may mean one more opportunity out of their reach. In this spirit, we have seen legislation introduced in major cities banning stores from going completely cashless, hoping to avoid what’s known as payments disenfranchisement.

Banks can, and should, play a key role in addressing the challenges faced by the underbanked in this accelerated digital commerce sphere. But we should not be solely responsible. Entities such as the Federal Reserve and its central bank digital coin (CBDC) could also play a vital role in enabling direct banking for the underbanked, with the added benefit of helping fiscal policy reach more Americans directly. If this is achieved, a true cashless society would potentially be achievable and inclusive of all people, just as cash can be used by anyone. 

A central bank-issued digital coin could go straight from the Treasury to consumers, without the need for a bank account or mobile or digital device. Stimulus payments could go directly to consumers without some of the friction involved with paper checks and accounts used for IRS deposits. The state of New York has already started experimenting more efficient distribution of welfare payments, which would parallel the option of a digital coin.

When it comes to the development of innovative payment and commerce solutions, it is critical to start with the customer. Banks should understand what customers need, identify the potential points of friction, and decipher the choices they are currently using. While this information usually exists within customer databases, banks should nevertheless take the time to dive deeper into customer trends to pinpoint exact behavior and adapt their services accordingly.

Payments are increasingly becoming embedded within everyday experiences. From shopping on social media to a contactless checkout experience, it is important that banks understand customer needs and make sure that payment offerings are conducive to their environment and experience. Payments, like other digital experiences, is becoming a friction competition. Whoever offers the least friction, while maintaining a superior, intuitive customer experience, will win. 

—Barry Baird is head of payments capability and delivery, TD Bank.