It is often argued that technology drives payment innovations. This statement would seem to be fairly self-evident. However, it remains uncertain whether the resulting payment options will be widely adopted by agents in different corners of society. The introduction of new payment channels presents challenges not only for payment providers but also for merchants and consumers. We could expect that merchants would not want to provide payment methods that consumers do not widely use, while consumers are not attracted to payment instruments that are not widely accepted by merchants. Research surveys and pilot tests are often used to estimate the likely acceptance and use of new payment media by consumers. In this context it is worth noting that such surveys and tests must be of sufficient size to assess the attractiveness of a payment instrument to consumers.
Although technology drives payment innovations, the success of emerging payment channels depends critically on consumers' choices. Instruments that do not meet certain critical requirements are quickly replaced with more suitable alternatives. Merchants are motivated to cater to their most frequent customers' preferred payment options, which may be related to the observation that many consumers are loyal to their choice of payment methods and are more willing to change merchants than change payment methods.
Does all this mean that cash usage is and will be decreasing? Perhaps, but cash transactions are hard to estimate, primarily because they are hard to track. Evidence from eg the United States on greater acceptance of credit and debit cards at traditionally cash-only merchants is not at odds with decreasing cash usage. This is particularly true where the number of total transactions has not increased to offset the substitution of cash by non-cash payments. There is also evidence that consumers are using payment cards instead of cash for a greater proportion of in-store purchases.
As regards the specific forces that drive the evolution of efficient payment mechanisms, expert opinions tend to emphasize innovations, incentives and regulation. Although numerous payment method innovations have emerged, many have not been successful in the marketplace because some payment participants have lacked sufficient incentives to change their payment behaviour. To gain critical mass in the marketplace, payment providers have to simultaneously convince a large number of participants of the benefits of a new mechanism. However, whether and how benefits and concerns regarding new payment mechanisms materialize in practice depends on their diffusion. We do not yet have a good understanding of what hampers the adoption of new financial innovations, due in part to a lack of systematic evidence. However, emerging research is seeking to quantify the effects of information provision and, in particular, consumer awareness on the diffusion of new payment mechanisms and, more generally, on the market for new payment media. These research efforts should be strongly encouraged. |