As we move into a new era of fintech, the traditional payment system fades more and more into the background. Gone are the days where cheques and cash are frequently used, and credit and debit cards are the only alternative options. Open banking is now on the rise in Australia and despite being in the early stages of adoption, it’s already showing promising signs of growth.
Traditional payments, unlike open banking, can be unsafe, inflexible, and expensive for both the merchant and the consumer.
Why are traditional payments outdated?
We live in a digital age, where convenience is king. Older methods of payment – like cash and cheques – are known for their inflexibility and inconvenience. They often require physical presence and do not offer the option to transact remotely. They require manual tracking and record-keeping, which can both be time-consuming and error-prone, and limits its functionality in the digital age.
Though the true inflexibility of traditional payment methods is that they offer limited payment options and can’t accommodate alternative payment methods. This inflexibility can cause delays for both the merchant and the consumer, and can negatively impact the growth and efficiency of a business.
Then we look at modern payment systems: they’re highly flexible, providing real-time transaction processing and remote payments, making them a much more attractive option for businesses and customers alike.
They’re not as secure
Traditional payment systems aren’t nearly as secure as the payment methods of today. Cash can be easily stolen or lost, cheques can be easily forged, and credit cards can be hacked. From June 2020 to June 2021, there were $490.1 million in fraudulent transactions on cards in Australia.
Modern payment systems allow for multiple layers of security, such as passwords and two-factor authentication (2FA), making it much harder for accounts to get hacked and money to be stolen.
Traditional payment systems have high transaction costs for businesses and customers. If you want to send money using a cheque, you need to pay for the cheque itself, as well as postage and other fees. If you’d like to withdraw cash from an ATM that's not affiliated with your bank, you will likely have to pay a fee. If you want to use an American Express to purchase something, you’ll likely be paying a percentage fee. Modern payment systems, such as Pay by Bank (which you can learn more about here) and Venmo in America, have low or no transaction costs, making them more cost-effective and adding to the ways in which businesses can save money.
They have a slow processing time
When it comes to processing payments, traditional payment systems can be extremely slow to process, particularly when compared to today’s payment methods. Depositing a cheque into your bank account? It could take several days for the funds to become available. Modern payment systems, on the other hand, can process payments instantly, making them much more efficient and convenient.
They’re bad for the environment
One of the most significant drawbacks of traditional payment systems is the negative environmental impact they have. The production and disposal of paper cheques, credit and debit cards, and other payment-related papers and plastics have a significant environmental footprint. Plastic production, in particular, contributes to greenhouse gas emissions, and the disposal of these plastics contributes to ocean pollution. Not to mention the emission of harmful chemicals and greenhouse gases that are a by-product of the production of both banknotes and coins.
Modern payment systems — with their digital wallets, digital transactions and paperless paper trails — have much less of an environmental footprint.
Wondering how your business can seamlessly move into the new era of payments? Learn more about Waave.