The Covid-19 pandemic and the continuing imposition of social restriction orders have brought significant changes in the daily life and consumer behavior of Cypriots. One of them is the dramatic increase in the use of digital payments as opposed to cash which was significantly decreased over the last year.
The same tendency was noted throughout Europe, starting before the Covid-19 period, whereby most Europeans are gradually abandoning cash and cheques and prefer the use of electronic payments. For example, in Sweden, only 5 per cent of payments are currently made by cash and by 2023, the country expects to become the first cashless nation in the world, with an economy that goes 100 percent digital. The pace of digital payments transition differs from country to county and depends on the rate of use of cash and cheques by its citizens and the level of knowledge they have with technology.
The vision of a holistic use of electronic payments was initially introduced by the EU Payment Services Directive 2 (of 2015) which provided the appropriate legal framework for their growth and development. Apart from the legal aspect, the PSD2 created a more suitable business environment for digital payments, allowing the growth of additional digital options and creating opportunities for non-banking organizations (such as payment institutions and electronic money institutions) to take advantage of the rise of digital economy and create new business models and sources of income.
Cypriot banks are corresponding to the new digital era, by providing solutions and services to fulfil their consumer’s new needs. Although the lion’s share in the digital payments market is still owned by banking cards, new payment solutions are gaining share, since they are embraced by the younger generation. Such solutions are web banking, mobile wallets and mobile watches. Mobile wallets and watches are basically apps that convert the smart phone or watch, into a device that can execute payments and other banking transactions, by using the recipient’s phone number as an alternative of his IBAN. Furthermore, payment authentication techniques have also developed to ensure that all transactions are completed in a safe and timely manner. Such solutions include 3 factor authentication techniques and other biometric solutions such as fingerprints and facial characteristics. Cypriot banks are continuously investing in the development of their digital services, as they expect to face fierce competition, not only from the payment institutions mentioned above, but from trade giants such as Apple (Apple Pay), Google (Google Pay) and Alibaba (AliPay).
In the not-too-distant future, we could see social media-initiated payments, voice activated payments, digital currencies and biometric payments including facial recognition, all becoming mainstream. However, one point is for certain, digital payments will continue to gain mass adoption in the immediate future as they expect to shift from being “a nice-to-have capability” into a “must-have essential service”.
