Do we need digital offline payments?
If one thinks about digital payment systems there is always one fear in the back of the mind. What happens if the light goes out or the internet connection is offline?
▽May. 18, 2021|Bernhard Kauer
The first and easy answer is always: those systems need a backup mode to be usable in the extreme case as well.
In fact the ability to pay without power or internet is one of the possible design choices for a Digital Euro. And 24% of the participants in the public consultation reported this as their first or second most wanted feature.
However when thinking a bit deeper about the problem one may come to a different conclusion. There are several reasons why any novel digital offline payment method might fail like the Geldkarte.
1. More and more places are getting online
In Germany 94% of the population uses the internet. Worldwide this number drops to 60% or 4.7 billion people. While there is still a long way to go to have internet everywhere, the offline areas are definitely shrinking. Advances in satellite internet from Starlink and Co. further speedup this trend. However more internet connectivity means there is less need for offline payments.
2. There is another approach to pay
One typically forgets that there are more than just online/offline payments.
Just think about what happens if you are in a bar drinking some beer and you suddenly notice that you have forgotten your wallet. There is no way you can pay since you have also left your smartphone at home to get some digital detox.
In such an extreme case you will end up paying with trust. Your companions or the barkeeper might give you credit if they know who you are, or at least if you find someone to vow for you, or they accept something you give them as a pledge. The buy-now-pay-later schemes are not a Klarna invention but are older than money itself. Accepting a cheque is - at its core - the same thing. You trust the signer that she has the money and you will get it later.
3. It is getting easier
Paying with trust is actually getting easier through digitization. You can more easily prove to any stranger who you are. Or find a common connection that vows for you. Or provide evidence that this is really an expensive watch on your arm. Or sign a digital cheque with a key that is certified by some trustworthy company or bank. All of this is possible if you have just a little power for your smartphone without needing direct support from the payment system itself.
4. Cash is the first contender for a long time
While cash usage shrinks if a good digital alternative is available, there is a long tail that can not benefit from digitization at all. Just think about the elderly, the disabled or even the blind people. They have a really hard time to use any digital solution. This demand will likely keep cash alive for the next decades. This means any novel digital offline payment method has to fight an uphill battle against cash that already has market acceptance, more use-cases, lower costs and probably better physical resistance.
There are several trends working against digital offline payments. First, more and more places are getting online. Secondly, the digitization makes trust-based payments a lot easier. Finally, cash is still around for a long time and will continue to rule the shrinking offline payment market. In summary, there is no space for a digital offline payment method.