Reflections on digital offline payments

Introduction

On 18/05 Bernhard Kauer (Founder & CEO by Puzzle2Pay) wrote an interesting blog on the need for digital offline payments, i.e. "Do we need digital offline payments?" - https://bkauer.medium.com/do-we-need-digital-offline-payments-3a74ec2d8c7b

Bernhard makes here an interesting argumentation that there is no real need for offline payments. After some reflection, I must admit I do not fully agree.

Below my argumentation in reply to his blog. Would love to hear your opinion.

1. More and more places are getting online

Definitely true, but internet connectivity is still an issue in certain emerging countries and even rural areas in developed countries.

Even if only a few percent are without connectivity, it's still worth to offer a solution for these places. Otherwise you exclude certain populations, but also the active users can come in very uncomfortable situations, when they are so used to a certain payment method and then realize it is not available (and don't have any alternative anymore).

Furthermore it's not because a place is online, that it's always the case, e.g.

Satellite internet might be too expensive for certain groups of people
Internet might not be available due to empty battery on your phone or due to data limits reached
Internet might be too expensive, due to high roaming costs. In Europe this is less of an issue, but if you go outside Europe roaming costs can still be exuberant.
In certain cases, you want to have an offline solution, as you don't want to have something requiring energy. E.g. a use case where you can find a price money in a forest (as a sort of treasury) might be a fun use case. Obviously you don't want to put a battery for multiple years, but it would be fun that you can scan a QR code and immediately claim the money.
Internet 4G/5G is still relatively unstable, due to telco network outages. Furthermore it becomes even more complex of airplanes or trains (even though solutions exist to have internet, they are typically quite difficult and expensive)

2. There is another approach to pay

Obviously correct, paying with trust is an option, but that's only the case when there is already some trust existing. Indeed in my regular bar there is no issue, but might be something different if I come in a place I have never been before.

3. It is getting easier

Agree that there are new means for establishing trust in a digital way, but most of the solutions you describe actually are also online solutions requiring your smartphone, which means it's not really a solution if my smartphone battery is down or I don't have internet.

4. Cash is the first contender for a long time

Fully agree, but isn't the whole point of those payment solutions for its users to be without cash? User experience is not great if you still need to carry cash as an alternative. Furthermore with cash becoming less and less common, ATMs will also become more and more rare, making the user experience for cash as alternative even worse.

So personally I would say that an offline solution is not a must-have, but it is a great nice-to-have or even should-have, as it drastically improves the user experience and the user's feeling of trust/confidence in the payment solutions (being able to pay always).

Furthermore you can envisage some offline payment solutions, which can perfectly complement an online solution. For example:

Obviously QR codes can reduce the need for online, but QR codes can support all 4 cases:

Scenario 1: Ideally both payer and recipient have internet connection. At that moment all checks can be done and both parties can be properly informed about the success/failure of the transaction.
Scenario 2: You can also support case of only payer having connectivity. At this moment payer scans QR code generated offline (containing merchant identifier & amount) by the merchant and confirms. All checks can be properly done, but merchant has to look on phone of payer to see if payment was successfully done (which opens a small door to fraud)
Scenario 3: Case of only merchant having connectivity. In this case payer generates a QR code containing his specific ID and authorization to pay specific merchant for specific amount. The merchant scans this QR code and debit operation can be done.
Scenario 4: Case of both not having internet. In this case setup of scenario 3 is most logical, which the merchant stores till he has connectivity. Obviously in this scenario, the merchant has no guarantee that payer has necessary funds at moment of paying.

Other options could be:

Charge a specific amount on a chip card, which can be read offline by specific PoS device
Charge specific amount on your smartphone, in the form of a digital key, which represents a specific owner and amount in encrypted way. User can pay with this via specific app at merchant side, by scanning QR code or even via NFC communication.
Usage of an electronic ID card (or identity app) to give a merchant a one-time Direct Debit consent to debit your account for agreed amount. Obviously in this case there is also no guarantee that merchant will get paid.

Comments

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