This article was first published in December 2021

By Michael Todd, Restaurant Association

Payments in our society have transitioned rapidly with the future of cash quickly becoming obvious. Recently, Aotearoa has seen the phase out of cheques, payment methods that have been with us as for hundreds of years, but coming in to replace them is a raft of new options. The new generations of our customers, including Gen-Z, are extremely open to experimenting with new ways of payment and are always looking for easier ways to do things. With the advances in technologies and incoming government regulations, a new era for payments fast approaching.

This article will discuss some of the current and upcoming concepts in payments that could affect the hospitality industry, from new ways for customers to pay for meals, to digital assets, online systems and employee payments. As the first in a series, this article will introduce some of these topics, with upcoming articles diving deeper into what this could mean for the hospitality industry.

The payment experience

The current and future trend in payments is all about removing friction. A great example of this is Uber. You order your Uber, get in, and get out at your destination. There is no manual payment, EFTPOS machine or pin number needed and to many this is massive advantage over classic taxis and one of the reasons they are so popular. It’s always a good idea to consider how you can reduce friction in your business in any area where customers or staff are involved. Reduction in friction results in increased efficiency. 

Most recently, payWave technology has started to address reducing friction, with the ability for customers to just tap a card or smart device to make payments. However, there are still costs and friction involved in this transaction, and they are still tied to the classic banking system.

What is cryptocurrency?

Cryptocurrency is a topic that some may be aware of but are often unsure about the place it has in the real world. Cryptocurrency as a definition has been expanding and now includes so much more than just Bitcoin. While Bitcoin is the original cryptocurrency based on blockchain technology, and it is still very relevant today, there have been many new and creative digital currencies and platforms invented over the last few years. They offer much more functionality, speed and security.

Cryptocurrency is already in the country, with millions of New Zealand dollars invested in different currencies and a small network of businesses and traders that utilise its unique characteristics. IRD have established rules for its taxable transactions and there are verified exchanges available in New Zealand that act as certified financial services required for cryptocurrencies to work within our country’s laws.

So what are the main cryptocurrencies?

A cryptocurrency (or “crypto”) is a digital currency that can be used to buy goods and services but uses an online ledger with strong cryptography to secure online transactions. Much of the interest in these unregulated currencies is to trade for profit, with speculators at times driving prices skyward.

The most popular cryptocurrency, Bitcoin, has had volatile price moves this year, reaching nearly $90,000 NZD per Bitcoin in April before losing nearly half its value in June. By mid-October, the price had risen rapidly again: it hit an all-time high above $95,000, before falling back slightly.

There are almost 14,000 different cryptocurrencies currently trading in the world. However, only a handful are of any real value or have real-word use cases. While the most notable and original is Bitcoin, it has had many copies that use different technologies and can offer better, faster and cheaper transactions. Of note, the most popular are Etherium, Binance Coin, Solano, Cardano, XRP and Dodge Coin. There are also stable coins which follow real word currencies in price – a lot of people use USD tethered stable coins to transfer to and hold before purchasing another coin as they tend not to fluctuate in price as much. If they can time trades well, some traders make profits in this way, much like share trading on the stock market.

How can I use them?

You can use crypto as a way of accepting value. You can hold it or exchange it for currency such as NZD. Transferring cryptocurrencies is as easy as making an online payment between ‘Crypto Wallets’ that use a unique ID for each wallet. You can purchase and sell crypto currencies on exchanges. Fees are taken during the process. It is possible to transfer money across the world in seconds, and depending on each person’s setup, you can move that transfer into local currency much faster than traditional money transfer methods.

There are also many other uses of the technology being explored which include the use of smart contracts and other information within a transaction. There are systems that allow for the payment, and the order of what the payment is for, to be included. This information is saved in the ‘blockchain’ system forever, acting as a proof of ownership and receipt you can never loose. A massive upside to accepting cryptocurrency as payment is the reduction in transaction fees, if using the right currency. 

It’s not for the faint-of-heart though. You need to understand what’s going on and be aware of the details. You could accept a payment for a coffee at 1.00 pm, equivalent to $4.00, but at 5.00 pm that transaction has dropped in value to $3.50. But, if you choose to hold that currency, it could be worth $8.00 next week…or $2.00. 

In the future, it is likely cryptocurrencies will become more stable and will become more of an alternative for payments, but in the meantime it’s potentially more for enthusiasts, or those willing to take the time to do the research and take the risks.

What about tax?

Tax accountant and crypto enthusiast, Tim Doyle, of Evans Doyle Accountants, was able to help answer some questions about the ins and outs of cryptocurrency and the New Zealand tax regulations. We will dig into these in future articles, but essentially crypto is not a way around New Zealand tax regulations: you are still required to pay income tax, GST and P.A.Y.E . You may also be required to pay tax on any increase in value when you exchange them for NZD, but you can claim loses as well. If it is something you want to look at seriously incorporating into your business, make sure you speak to an accountant about it first.

Cryptocurrencies are definitely a big part of the future of finance. Several countries have adopted them as official second currencies and many countries are continuing to write legislation to control the markets, thus cementing their place in the global finance future. 86% of the world’s central banks are researching digital currencies, so their adoption is inevitable. The old ways of banking are slowly crumbling, and it does look like usable systems that are built around crypto are still some way off for the general consumer market, but there are some transitional concepts already here.

Other digital payment options

There are many new digital payment methods coming out of the woodwork currently. Many have been developed due to increased demand as a result of Covid-19. Already many other countries, including China, have payment systems built into social media software. WeChat, the leading Chinese social media service, has inbuilt WeChat Pay. It’s like a digital wallet where consumers can transfer money to and from each other and pay businesses easily and quickly using QR codes, in-app payments, or website embeds. They have had this for years and it has become an integral part of many lives and the new norm. Credit card use in these countries is steadily being replaced by these digital systems and is used in fewer than 50% of transactions. You can utilise these systems in New Zealand through your EFTPOS machine by accepting both WeChat Pay and Ali Pay payments directly, although not as many local customers are set up for these systems.

There are a few New Zealand-developed answers to this, including DOSH. I sat down with the co-founder of DOSH, James McEniery, for a chat about the app and what it can do:

So tell me about DOSH and why we need it

We started DOSH after living overseas for several years and getting used to the convenience of the digital wallets that are used in other countries, such as Singapore. It was just how you lived. You could do anything with them: pay bills, buy a Coke, pay for a bus. It was so easy, they didn’t cost much to run, transfers were instant and you didn’t have to remember a pin number very often.

We were surprised there was nothing like it in New Zealand, so we decided to build it. We hope it will revolutionise small payments, from buying a coffee, lunch or retail purchases. DOSH can make taking payments for small business owners so easy; no need for a mobile EFTPOS machine or complicated slow bank transfers, just scan the QR code and you’re done.

How does it work for businesses?

We designed it with businesses in mind. People can easily transfer money between each other with DOSH and also pay businesses. It also has the ability for people to ask for payments from each other and has inbuilt systems to split payments with contacts. When you want to split the bill at a restaurant, its easy with DOSH. We are a registered financial service provider, so it’s trustworthy, and our back-end systems for business let you track payments, calculate GST, and at the end of the day, all of your DOSH payments get transferred to your nominated bank account, just like other systems you use already. 

Do you have more plans for DOSH?

Absolutely, we’re looking at upgrades to the system all the time but to start with we’re trying to get as many people on board as possible. We hope that soon we will introduce business-to-business payments so you can pay other businesses, or even employees, using DOSH. It could replace petty cash, or the need to worry about arranging for a bill to be paid for a late-night callout to fix a piece of equipment. if you are interested in receiving more information on how Dosh for Business a contactless way to receive funds please head to www.dosh.nz for more info.

Buy now, pay later

According to a recent Westpac report, $15 million per week (which is 1 in 5 dollars spent in retail) are buy now, pay later payments. Buy now, pay later schemes include Afterpay, Lay Buy, Humm, Genoa Pay and more. These relatively recent additions to the New Zealand payments system world have taken off quickly, allowing customers to have interest-free lines of credit but with short repayment windows. These schemes have fees of course. While they appear free to the customer, they are not free for the merchant. They do, however, have great advantages for businesses willing to accept them, as they will expand the pool of customers willing to spend and maybe, as they don’t have to pay for it now, that upsell to the bottle of Moet will be easier. Whether or not these systems are great for society and personal financial management is another question.

Currently the major buy now, pay later brands do not operate in hospitality in New Zealand, but they do in Australia. I[RE2]  approached both Afterpay and Layby for this article and while they both said they don’t currently offer services for hospitality here, they are always looking for ways to expand.

New versions include Bundle by Humm which works around a MasterCard backed virtual payment card; the consumer uses it to pay for goods and then bundles those separate purchases together into a short-term finance agreement, with no interest.

Uber eats was a big shock to our industry that many are still struggling to deal with, buy now, pay later may also be another incoming trend for our industry that will require good financial management and planning, so businesses, often those with slim margins, can operate successfully.

Employee payment – the rise of on-demand pay

A new trend that is popular in the US is that of daily payment to employees. It’s exactly what it sounds like: you pay your employee at the end of their shift, they can then use that money straight away, or the next day, rather than at the end of a traditional week or fortnight pay cycle.

The concept is currently offered by multiple platforms and from many large employers. In fact, many of the most recognisable employers, such as McDonald’s, believe this is a staff benefit and they use it to entice new employees and encourage loyalty.

In the US market, there are also many third-party companies getting into this. Essentially, the employee logs their pay details and a finance company pays them daily based on the hours worked. The employee then directs their entire pay check to the finance company, who of course take a fee for this service. If you’re curious, have a look at dailypay.com, it’s one of the largest.

Many employees believe having access to their income immediately is a great benefit, particularly the younger generations, and this could see the rise of systems like this in other markets, including our own. Some of the businesses that use them say that it reduces the need for employees to take out high-interest payday loans and the embarrassment of asking for an advance on their pay.

Conclusion, for now.

Looking for friction in your business at all angles is always a great idea. Fixing them is another story, but can provide great rewards, especially when it makes the payment experience better for your customers. Use technology wherever you can, but ensure you understand it. Leverage payments as part of your customer experience and make sure you communicate well with your customers and make it easy for them. Be open to all changes that are coming but make sure you are aware of any extra fees and what the added benefits to your business are. Track them if you can, so you can find out what these extra fees have added in revenue over time.

A lot of these incoming methods of payment have fees, just like most things, but what’s important to consider are advantages they will bring as well. Will they outweigh the added costs? Will the cost of traditional payments reduce as well?

This article was written with the help of Westpac, PaymentsNZ, DOSH and Evans Doyle Accountants.