Trends in Development of Cashless Payment Systems in the UK - Case Study Example

CASHLESS PAYMENT SYSTEMS Name Institution Table of Contents Table of Contents 2 Executive summary 3 Introduction 4 Purpose of Report 5 Background Information 5 Trends in Development of Cashless Payment Systems 6 Credit Cards and Debit Cards 6 Mobile Wallets 7 Development of Bitcoin 8 Concerns and Advantages of Cashless Payment Systems 9 Conclusion 10 References 12 Bleyen, V., & Hove, L., 2007. Micropayments: A survey of the payment instruments accepted by Western European newspaper sites. Journal of Payments Strategy & Systems, vol. 2, no.3, pp. 284-302. 12 CNN 2014. What is Bitcoin? Available at http://money.cnn.com/infographic/technology/what-is-bitcoin/ . 12 Farrow, G., 2012a. Strategies for payment systems planning. Journal of Payments Strategy & Systems, vol. 7, no. 1, pp. 18-42. 12 Farrow, G.., 2012b. Patterns for Payment Systems Integration. Journal of Payments Strategy and Systems, Vol. 6, No. 1, pp. 15–36. 12 Hayden, R. Akash, L. Ledford, S. and Nunn, C. (2010) ‘Payments Hubs: Redefining the Industry’s Infrastructure’, McKinsey Quarterly, No. 8, pp. 16–21. Available at: http://www.mckinsey.com/clientservice/Financial_Services/Knowledge_Highlights/Recent_Reports/~/media/Reports/Financial_Services/MoP8_Payments_hubs.ashx (Accessed on 2nd April 2014). 12 Mansor, M., & Tayib, M., 2013. Integrated and Open Systems Model: An Innovative Approach to Tax Administration Performance Management. The Innovation Journal: The Public Sector Innovation Journal, vol.18, no.3, 1-29. 12 Laven, M., 2013. Money evolution: How the shift from analogue to digital is transforming financial services. Journal of Payments Strategy & Systems. 7, no4, pp. 319-328. 13 Patel, H., & Armstrong, C., 2013. Changes in Electronic Money Regulations: For better or worse. Journal of Payments Strategy & Systems, vol.7, no.2, pp. 174-179. 13 Payments Council., 2011. Accounts Switching’, Payments Council, London. Available at: http://www.paymentscouncil.org.uk/current_projects/account_switching/ (accessed 2th April, 2014) 13 Appendices 14 Executive summary The technological advancements in the United Kingdom have influenced the society and business organisations in different ways including the integration of cashless payments systems. There has been an increasing trend on the use of cashless payment systems that have developed from the past few decades. These cashless payments systems include the use of cards such as credit and debit cards that allow a user to pay for goods and services without the use of cash, Bitcoin which allows payments to any individual in any part of the world, and other near field communication technologies that link the customer bank accounts with their mobile phone number allowing mobile money transfers. The development of cashless payments is due the security issues in cash payments and convenience in using cashless payment system. Although new payment systems are faced with different challenges, business organizations are embracing the new technologies in their organization since the customers are quickly adopting the technology. This may result to a society where cash payment will be history. Introduction The technological advancements in different sectors of the economy have revolutionized different ways in which people and business organisations conduct their activities and lives. Information systems as part of information technology have been used by people in different ways such as conducting business, easing difficult tasks among other uses (Hayden et al., 2010, p 17). The impact of information systems in the society is one of the major successes since the impact of digitalization, and information technology has been noted. This is because the advancements in digital; system including information systems had resulted in the development of new modes of development. Mansor and Tayib (2013) claims that the arrival of information systems in the society means that there is a change in social, cultural and political developments in the society. The United Kingdom is one of those countries in the world that has been experiencing a rapid change in technological system both in the society and in the economic system. This is because the society has been absorbing new technologies at an increasing rate. According to Farrow (2012), the business sector is also embracing the use of technology in doing business so as to be able to deal with the competition in the market. In order to make business activities easier, most business activities have embraced new technologies in their activities including systems of payments. In the United Kingdom, there has been a trend in which cashless payment systems that have overtaken the classical ways of payments. This means that information system has become integrated in the society and economic activities in most business organisation (Laven, 2013, p. 320). Purpose of Report The purpose of this assessment report is to demonstrate the integration of information system in the society and in different economic sectors. The report will focus on ways in which information system have impacted the society in terms of payment systems and evaluate the trends in information systems that are used in payment systems. This means that the report will establish the payments systems that use information technology and do not use any cash to busy good and services. In order to demonstrate the integration of information systems in the society and the possibility of a cashless economy and society, the United Kingdom is used as the case study location in the assessment. Background Information Over the past few decades, there has been a decrease in the digital divide in the United Kingdom. This means that the society is becoming aware of the impact of information systems and their usage in different sectors of the economy (Laven, 2013, p. 325). The number of individuals who uses digital devices in the world to make transactions has been increasing. The classical modes of payments were using cash where an individual would buy goods and services and pay using dollars or pounds. The development of I information system in payments of goods and services was only reserved for a few individuals in the society especially the rich who were seen to have a different living standard. However, the digital divide has been shown to close up in the recent past. This means that people have adopted new information systems and applications in doing business. With the current state of technology and the technological growth witnessed in the United Kingdom in terms of use and payments, there are evidence that may indicate the use of information system in doing business and purchasing of products (Farrow, 2012, p. 20). Trends in Development of Cashless Payment Systems Business information systems that can be integrated with the economic activities that involve people include management information system, accounting information systems, and marketing systems that are used by the business organization at different levels; accounting systems and online payment systems. The developments of this alternative to cash means of payments in the United Kingdom may give a clear indication that there might be cashless payments in the near future. Business organizations and private Individuals in the United Kingdom have also embraced the installation of cashless payments systems in their business organization indicate that, business organization as slowly moving from the notes and coin payment systems to cashless payments systems. Looking at the patterns in developments of payments systems and reports from the payment council in the United Kingdom which is the payment controlling authority, there is a trend which may result to cashless payments. By the year 2012, the payment council reported a decrease in the cash payments by 54 per cent (Payments Council, 2011). Credit Cards and Debit Cards Although this may not mean that cash is not in the economy, it simply means that in the coming years, people will no longer use cash if the trend is to continue (Appendix 1). Some of the payment systems that have been embraced and are likely to replace cash payments include credit and debit cards. Whitehead (2013) argues that Credit transfers have now become a way of payment in the United Kingdom. In credit and debit transfer of money is done under the instructions of the payer to his bank to the beneficiaries account. In some cases, the transfer goes through intermediaries. In addition to credit transfer, there is credit cards and debit which are used under the instruction of the issuing company. The development and use of credit and debit cards allows customers in the United Kingdom to make purchases to a certain limit s per their credit and debit card limits. Although the use of cards in payment account for about a third of the cashless payments system in the United Kingdom, it is a growing area that has become fully integrated into the society. This means that there is a possibility in future that withy similar payment systems, cash will no longer be useful. The use of cards may be seen as a threat to the use of cheques in making payments. Another means of payment system that has been emerging in the United Kingdom is called near field communication. This is a payment system in which people are able to make shopping transactions by holding their cards against a reader that is able to read the details of the customer and deduct the value of the products from the card (Bleyen & Hove, 2007, p. 291). Mobile Wallets There is an increase in the development of information systems such as mobile wallets that can be used to make payments without necessarily using cash. According to Farrow (2012b) the mobile wallet systems that are becoming in use in the United Kingdom, money are transferred through the use of mobile devices. It is also referred to as mobile money in which a customer can pay for goods and services using his or her money sored in mobile wallets. Online companies that develop mobile application have come up with mobile wallet applications. For example, the development of Google wallet application is a breakthrough in the use of mobile payments systems that are likely to substitute cash and cheque payments. The Google wallet allows the user to store his credit cards, debit cards, and sales promotions on the mobile phone. This application uses the near field communication technology in order to make secure payments (Farrow, 2012b, p. 22). Development of Bitcoin This is a virtual currency system that has been tested in parts of United Kingdom that can be used to make payments without the use of cash. According to Whitehead (2013), it is a digital cashless payments system that allows an individual to make payment to any individual in any part of the world. The Bitcoin technology uses a peer to peer technology that has no central control point (CNN, 2014). This means that the development in virtual currency may also facilitate the movement of the United Kingdom society to use cashless means of payments (Vaishampayan, 2014). a) Future Cashless payment by Payment Council The payment council is set to launch a new cashless payment system in the spring of 2014. This means that there are on-going development in the United Kingdom to embrace the use of modern systems of payments that do not use cash and cheques. According to the payment council, the new payment system will be able to link the mobile phone numbers of the individual with his or her bank accounts (Laven, 2013, p. 326). This means that the customer will be able to access his or her money in the bank using his mobile phone such that he or she can make payments by sending texts. Major Banks in the United Kingdom including Barclays bank, metro bank and Santander are involved in the implementation of this new information system in payments. Customers who wish to use this service will register their mobile number using the already existing mobile banking systems in the participating banks. The mobile numbers will be linked to their account details in order to allow shoppers to make payments (Payments Council, 2011). Concerns and Advantages of Cashless Payment Systems According to Mansor & Tayib (2013) the introduction and implementation of the new information systems used in payments of goo ds and services in the United Kingdom has its concerns and benefits. This means that the society and retailers in general are stuck in a cash and cashless debate. The concerns in handling cash are that it is expensive and time consuming. The cashless means of payments such as credit cards allows an individual to make faster payments in online stores (Bleyen & Hove, 2007, p. 291). In addition, handling cash is faced with major security risks that leave customers with no option but to use safer means of payments. It is safer to carry a credit and debit card than carrying cash to the bank. It is very easy for people and fraudsters to make and use fake currencies. Due to this security concern, there has been a major shift to safer ways of making payments. Although retailers and innovators are introducing innovating means of payments, some customers still use cash to pay for their goods. This means that retailers have no choices but still use cash as a means of payment (Patel & Armstrong, 2013, p. 175). The new technological payments systems are also faced with security concerns. The linking of mobile phone numbers and bank accounts can be used by fraudsters to redirect cash to other accounts. This means that before new payments systems are implemented, security evaluation of the systems should be done to determine their safety. However, with the increasing demand for online business and internet marking, online store have opened up which require new methods of payments. Therefore, in the near future people will be able to fully accept the use of cashless payments systems that are much safer, convenient and faster than using cash payments (Laven, 2013, p. 322). Conclusion The advancements in information systems in different parts of the world have increased the demand for new ways of doing business. Many individuals in the society are embracing the new technologies which are much quicker and convenient to use than classical means of doing business. Information technology plays a key role in the business organization. The use of information technology in payments system in the United Kingdom has developed over a long period of time. This means that the use of alternative means of payment from cash has become slowly integrated into the society. This is because there has be a slow introduction of new technological payments systems such as debit and credit cards, bitcoins and mobile payments systems which have been used for decades. The United Kingdom is one of those countries in the world that has been experiencing a rapid change in technological system both in the society and in the economic system. This is because the society has been absorbing new technologies at an increasing rate. In addition, the business sector is also embracing the use of technology in doing business so as to be able to deal with the competition in the market. Although the use of new information systems in payments is faced with a number of challenges, it is seen as the only solution to many technical problems facing business organizations in terms of payments. If the current trends on the use of cashless payments remain the same, one can foresee that in the next two decades, the United Kingdom will be using cashless means of payments which are considered much safer, faster, and convenient with the current developments in online business and establishments of online stores. References Bleyen, V., & Hove, L., 2007. Micropayments: A survey of the payment instruments accepted by Western European newspaper sites. Journal of Payments Strategy & Systems, vol. 2, no.3, pp. 284-302. CNN 2014. What is Bitcoin? Available at http://money.cnn.com/infographic/technology/what-is-bitcoin/ . Farrow, G., 2012a. Strategies for payment systems planning. Journal of Payments Strategy & Systems, vol. 7, no. 1, pp. 18-42. Farrow, G.., 2012b. Patterns for Payment Systems Integration. Journal of Payments Strategy and Systems, Vol. 6, No. 1, pp. 15–36. Hayden, R. Akash, L. Ledford, S. and Nunn, C. (2010) ‘Payments Hubs: Redefining the Industry’s Infrastructure’, McKinsey Quarterly, No. 8, pp. 16–21. Available at: http://www.mckinsey.com/clientservice/Financial_Services/Knowledge_Highlights/Recent_Reports/~/media/Reports/Financial_Services/MoP8_Payments_hubs.ashx (Accessed on 2nd April 2014). Mansor, M., & Tayib, M., 2013. Integrated and Open Systems Model: An Innovative Approach to Tax Administration Performance Management. The Innovation Journal: The Public Sector Innovation Journal, vol.18, no.3, 1-29. Laven, M., 2013. Money evolution: How the shift from analogue to digital is transforming financial services. Journal of Payments Strategy & Systems. 7, no4, pp. 319-328. Patel, H., & Armstrong, C., 2013. Changes in Electronic Money Regulations: For better or worse. Journal of Payments Strategy & Systems, vol.7, no.2, pp. 174-179. Payments Council., 2011. Accounts Switching’, Payments Council, London. Available at: http://www.paymentscouncil.org.uk/current_projects/account_switching/ (accessed 2th April, 2014) Vaishampayan, S., (9 January 2014). Bitcoin now accepted on Overstock.com through VC-backed Coinbase. marketwatch.com. Wall Street Journal. Retrieved 2 April 2014. Whitehead, J., 2013. Analysis: Will the UK ever be a cashless society? Retailweek. Available at http://www.retail-week.com/technology/analysis-will-the-uk-ever-be-a-cashless-society/5051837.article. (Accessed on 2nd April 2014). Appendices Appendix 1: Table showing the percentage acceptance of debit and credit cards in the United Kingdom and rest of the world. Appendix 2: The parties involved in cashless payments Read More