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Paying For Payments

27 February 2017

Paying For Payments

Jess Bown,
The Telegraph

Is paying people to make digital payments the quickest way to a cashless society?

A number of Asian economies have activated incentive plans aimed at consumers to speed up the adoption of digital payments. In India, for example, the government has decreed that people should be offered discounts on fuel and rail fares when they pay digitally, in Thailand, new payments system,PromptPay is slashing transfer costs, and in Singapore, the government is urging banks to up the cost of processing cheques to persuade people to go digital. Could such measures help to increase take up in the UK too? We investigate.


The payment strategies of Asia’s digital dragons

Having fallen behind countries such as the UK and the US, several Asian economies are now on a mission to drive the digital revolution home.

In addition to the government incentives for making digital payments in India, hundreds of millions of people with no bank accounts will also have to open one to exchange their now worthless INR 500 and INR 1,000 notes, stripped of their value last November after Indian Prime Minister Narendra Modi declared war on black money and counterfeit notes.

The demonetisation of India’s larger value notes had an immediate impact on usage of digital payments. According to Juniper Research, payments company Freecharge noticed a 12-fold surge in its mobile wallet balances as a result of the decision, while 14 million Indians registered with Paytm in the last six weeks of 2016.

Thailand is hoping that its new digital system PromptPay will prove similarly successful. With PromptPay, transfers are free below a threshold of 5,000 baht, with larger transaction costs capped at 10 baht. That’s a huge saving on the 25-baht to 120-baht interbank levies previously charged by the banks.

In Singapore, meanwhile, the Monetary Authority is taking the opposite approach: telling banks to pass on the full cost of paper-intensive services, such as cheque processing, to encourage customers to go digital.


Payment incentives in the UK

With its high usage of mobile phone and banking services, the UK is one of the best placed economies to use digital payments, according to a recent Citigroup report.

VocaLink’s own research shows that 84% of UK consumers now use a smartphone, and that half of those already making mobile payments enjoy the convenience of this type of transaction. But could offering financial incentives convince even more Britons to use digital payments?

Historically, discounts and incentives have shown to be an effective means of promoting new payment forms. The success of contactless payments in the UK can partly be attributed to the lower interchange rate offered to encourage merchants to adopt this channel, while the popularity of direct debits is largely due to the discounts available to those who pay their bills this way 

So it is not surprising that several digital payment providers are already using discounts and loyalty schemes to attract customers.

Examples of such offers include Android Pay’s “Android Pay Day”, which was designed to reward early adopters of the service and included discounts from Starbucks coffee shops and takeaway service, Deliveroo.

“Loyalty programs will be a significant driver in mobile wallet adoption,” analyst BI Intelligence said in a recent report into mobile wallets. It expects adoption and usage of digital payment services to increase exponentially over the next few years, with deals from mobile wallet providers overtaking retailer offerings.

“As universal mobile wallet players begin to add effective loyalty programs and coupons to their offerings, adoption for retailer-based mobile wallets is likely to slow down because these offerings are their main marketing points,” the report said. 



The success of UK incentive programs provided by services such as Android Pay and Samsung Pay indicates that discounts do help to encourage more people to use digital payments – here as elsewhere in the world. However, with cash already on the decline in the UK, the government is unlikely to take steps to push digital transactions in the same way as Asian governments.

Andrew Neeson, Market Intelligence Manager at VocaLink said: “Government-led digital incentives such as those being launched in countries like India are a response to social and economic factors such as a large grey economy or a need to reduce costs by introducing a more efficient payment system.

“In the UK, where there is very healthy competition for payments, any benefits offered are likely to be competition-led, rather than a matter of public policy.”

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