On 2nd June 2018, millions of people across Europe were unable to make any payments with their Visa cards as a result of a huge system failure. This network crash was, unfortunately, not the only situation in which we have seen technology-reliant systems grind to a halt recently, inconveniencing thousands of customers. There have been hacks and attacks on customer data at big name banks, as well as IT switch overs that have had chaotic consequences. But what does the latest problem with cashless paying really tell us?
Cashless payments have their problems too
The drive towards cashless payments and using technology, as opposed to notes & coins, to pay for things has been quite relentless. From Apple Pay through to wireless payments, we are increasingly being encouraged to leave the cash at home and make payments for everything electronically. However, the Visa catastrophe shows that cashless infrastructure can have some serious problems. If the system you’re relying on to make payments crashes then you simply can’t make those payments. So how vulnerable are we really making ourselves by becoming reliant on this technology?
A diversified market would be a better option
Currently, Visa and MasterCard dominate electronic card payments. There are consequences for consumers in terms of competitive pricing and a lack of choice. However, this also means that if one of these players experiences serious problems then a very big chunk of customers will be affected. If the UK had a more diversified market, with a wider range of options, then one payment provider being affected wouldn’t have such a wide ranging impact.
What happens if you fall outside the system?
Another consequence of having a market dominated by big players is that they can exclude large numbers of people from taking part. What happens if you fall below the criteria to be eligible for a Visa card for example? If we move towards a completely cashless society then anyone who doesn’t meet the criteria for these two big card providers could find themselves completely excluded from economic participation.
How reliable is the technology?
Specifically, how reliable is the technology being used by your individual bank and the point at which this integrates with Visa or Mastercard systems? Although banks are highly likely to promote themselves as innovative and ahead of the curve on the technology front, many of the infrastructures that underpin UK banks are decades old. Often, the work has simply not been done on reconciling old systems with new and it may be here that the problems arise. Pinar Ozcan, professor of strategy at Warwick Business School told the Independent newspaper that
“most of us trust an established bank with our money, not realising that these banks’ IT systems date back to the 1970s and they have not updated these systems significantly since then, precisely due to the fear of the system breaking down in the process.”
What about your data?
Law firm Osborne Clarke surveyed 2,000 people and found that more than three quarters of those people were concerned about the amount of data they would be sharing if electronic payments completely replaced cash. The perspective that big financial institutions will have on the lives of customers by being able to see every single payment – and the judgements that could inform at the bank – is very unnerving for some.
Is there any good news?
We are increasingly moving towards a cashless society and, despite the recent network crashes and the confusion that caused, there is light at the end of the tunnel.
Soon, if systems crash you could just use a a card from a different provider. More payment options are becoming available as alternative banks are appearing, which means that the market is being diversified. So, in the future, if you do find yourself the customer of a provider like Visa with a system that has crashed then you should just be able to use another card from an unaffected provider.
Improving technology will become a dealbreaker. The likelihood is that banks that don’t update systems and invest in the latest technology to ensure systems are not outdated will simply lose their customers. Losing customers is one of the biggest motivators for financial organisations when it comes to investing in services and infrastructure so it’s highly likely that the current situation will be improved.
Electronic payments encourage transparency. Although electronic payments provide more data about our own transactions, they also mean that there is less opportunity for a black market than exists with cash. Cash is not traceable and so can be moved around the world to pay for anything, from drugs to terrorism. More electronic payments could, in theory, reduce this kind of impact.
Those who handle data are being held to higher standards. Already the GDPR has ushered in a new era of data protection and emphasis on institutions handling data to be more proactive about protecting and collecting it. It’s likely that these obligations will increase and financial institutions will have to be more responsive, not least due to the lost of customer trust that results from a data breach.
Alex Hartley is a keen advocate of improving personal finance skills. She's worked at Solution Loans since 2014 and written hundreds of articles about how people can manage their money better. Her interest in personal finance goes way back to...Read more about Alex Hartley