The “cashless society” is an unstoppable global trend. Technological advances are transforming payment methods by offering a more streamlined experience to today’s demanding consumer, who now expects instant gratification, simplicity and convenience.
Today, most major banks offer Near Field Communication (NFC)-enabled cards, and card use is popular in general. There is an increasing proliferation of mobile payment methodologies, which are tied to cashless NFC instruments, among other methods, such as peer-to-peer payments. These additional payment methods provide more convenience for consumers and, as a result, cash use is diminishing. This is particularly true among Millennials and Generation Z, further increasing the need to support cashless payment at retail.
In the U.S., 80 percent of consumer spending is cashless1. In addition, 34.5 percent of adults now say they don’t like paying for things in cash, and among those who play lottery at least weekly, this number rises to 47 percent2. Globally, 34 percent of consumers have now used a contactless payment card3. In Britain, one in four consumers actively avoid businesses that operate a cash-only policy in favor of companies that accept card payments4.
A leading consumer trend-monitoring agency, The Foresight Factory, predicts that, five years from now, seamless payments through biometrics or devices will be everywhere. More specifically, mobile payments will be integrated into a contactless financial passport system that is a single, secure channel for omnichannel purchases across devices. Peer-to-peer payments will be conducted as a seamless part of instant messenger conversations in natural language. In short, It’s clear that there will be no going back to cash.
The lottery industry, which has traditionally been cash-only, must now embrace the shift to cashless payments. The simple fact is that, if players no longer carry cash, they will no longer participate in lottery unless they can use their preferred cashless method. Indeed, all cash-only businesses must adapt − not only to remain competitive, but also because expanding payment options offers an opportunity to embrace the next generation of lottery players and drive incremental sales.
However, accepting cashless payments for lottery transactions does have its challenges. The biggest among them include accepting the fees associated with cashless payment and the legislative prohibitions in some jurisdictions from accepting cashless payments. In moving to cashless, these fees are necessary, but we should regard them as an investment in the future of our industry, as they will inevitably lead to increased sales, faster transactions, and more satisfied customers. We also recognize that some jurisdictions expressly prohibit any form of cashless payment, while some others allow debit- but not credit-based payment. These are the topics that lotteries and the industry need to start to address in conversations with regulating bodies and legislatures so that they, too, understand their impact on and potential obstacles to lottery sales, and the corresponding decline in profits to the state’s good causes.
In addition to legislation education and advocacy for cashless, there is also a need for retailer education and advocacy. There is some confusion among retailers about the legality of accepting cards for lottery purchases, as well as the ability to combine lottery products with other items in a cashless purchase basket (in states where cashless is permissible). A 2014 survey of retailers in Indiana indicated that a third of lottery retailers thought that accepting debit cards for lottery was illegal, when in fact it is not, revealing a general lack of awareness of the rules associated with acceptance of cashless for lottery. Each lottery should clarify its jurisdiction’s position to their retail network, as sales opportunities may be missed.
With regard to fees, for clerk-activated sales, most retailers already accept cashless for their non-lottery products, and combining the larger shopping basket with lottery products may provide a path toward financial viability, as it allows retailers to share the transaction costs across the non-lottery part of the transaction – a fee the retailer is already paying if he or she offers cashless payments today.
In the case of self-service, the transaction cost would likely cause the retailer to pay more in fees than the commission earned on the anticipated incremental lottery sales. The lottery must regard this as the cost of gaining incremental sales and could consider new business models to balance this cost through lower commission on self-service sales.
There are several case studies that point to the importance, viability and increased sales opportunity of allowing cashless purchases. In 2015, warehouse retailer Costco introduced acceptance of PIN-debit and AmEx cards and saw several benefits, including much higher-priced baskets, improved employee productivity, and fewer costs associated with cash handling. Sales have gradually migrated from cash and checks to cards, with 80 percent of sales now charged to cards. Customers began asking to use cards in the food courts, too, and Costco responded with a full rollout, quickly realizing big lifts in average food court tickets; PIN-debit sales came in 40 percent higher than the average cash ticket, and the average AmEx ticket was 50 percent higher than the average cash sale5. Similarly, McDonald’s reports its average ticket increased by 56 percent when people use credit cards versus cash6.
Pilots conducted by the lottery industry have also shown that accepting cashless payments had positive results.
In February 2016, the Hoosier Lottery measured the year-over-year volume per outlet (VPO) impact on chains that accepted debit versus those that did not. The result was an 8.6 percent VPO improvement for those who accepted debit card payments.
Preliminary evidence gleaned from the Georgia Lottery pilot, currently in process at all claim centers and the two Atlanta airport facilities, indicates some conversion of cash sales to cashless; however, it also reflects some additional incremental sales uplift due solely to cashless.
Consumers are very clear that they want faster, simpler and more convenient transactions and, as an industry, we need to work together to engage with the next generation of lottery players. In the age of the consumer, the risks lie not in responding too early but in responding too late7. Consumers are empowered and don’t care if building the experiences they demand requires a complex and industry-wide approach. They want immediate value, and will drift away if they don’t get it.
Collectively, we in the lottery industry need to find a way to embrace this consumer-driven change; the alternative is to be left behind. We must collaborate, share knowledge and information, and make cashless lottery transactions at retail a reality. The time to act is now, to win in the age of the consumer.
1 Mastercard World Beyond Cash survey 2012
2 Foresight Factory survey October 2016
3 Foresight Factory survey February 2016
7 Forrester: Lead the customer-obsessed transformation