Where the smart money is.

We drew the cashless payments landscape in Investing in Cashlessness Part 1. The overarching movement in the Payments world is:

1. Move from cash transactions to credit and debit card transactions.
2. Move from credit/debit card to digital wallets and non-card transactions.

But there are still 4 basic types of money transactions, cash or no cash:

1. Business to Business: B2B
2. Customer to Business: C2B
3. Business to Customer: B2C
4. Customer to Customer: C2C

And to carry out these transactions, these used to be the main players:

1. Merchant
2. Merchant Acquirer: Merchant’s Bank
3. Card Network: Like Visa or Mastercard
4. Payment Processor: Like FirstData
5. Customer
6. Issuer: Customer’s Bank

Here’s the flow of cashless payments used to look, circa 2010, according to KPMG:

But now, circa 2019, this is the slight amendment that is creating a disruption across the chain:

This ability to use neither cash nor checks nor cards to transfer money to friends and family was a C2C innovation – John to Jane. But it has reverberated from C2C (see above) towards B2C and C2B. That’s a disruptor, which in the early stages of mass adoption. When you compound this move towards cashlessness and cardlessness with hundreds of millions of yet-to-be-banked people in Asia and Africa, you’ve got a phenomenon on your hands. This technological innovation is slowly but surely leading to a world that’s:

1. Cashless
2. Contactless/Cardless
3. Borderless
4. Frictionless
5. Hassle-less

Consumers want it. Businesses want it. The main impediments are:

1. Habit
2. Costs

Both barriers are likely to decrease significantly over the next few years. That’s our bet. This is a double-edged sword. Companies that are facilitating this phenomenon may face pricing pressure but will hope to more than offset that decline on higher volume.