From crisis come innovation (Photo: Getty Images)
From crisis come innovation (Photo: Getty Images)

PartnersNovember 3, 2020

Contactless and queueless: How Covid-19 has accelerated the future of money

From crisis come innovation (Photo: Getty Images)
From crisis come innovation (Photo: Getty Images)

From shillings to smartphones, humans have always found new ways to pay and be paid. So what’s next and how has Covid-19 sped things up? 

Turns out a pandemic is a good time to be in the colouring-in business. 

Inside the Honeysticks factory in New Lynn, Auckland, it’s all go. The machines are cranking out the beeswax and soy-based crayons, the team is busily stuffing them into their cardboard packets and co-owners Will Radford and Luke Thompson, resplendent in their branded green aprons, are getting their hands dirty on the factory floor. 

Radford and his wife Claire purchased the company around 10 years ago after seeing potential in natural crayons with no toxic ingredients and ran the business on the side. Thompson bought in around four-and-a-half years ago with his eyes on international expansion. And they both can’t quite believe how well the business has performed in 2020. 

As Covid-19 started catching on around the world, there was so much uncertainty. They came up with a range of forecasts that ranged from “we’re completely stuffed and may not make it” to “we’re pretty stuffed but we think we’ll get through”. An inability to keep up with demand was definitely not among their initial projections but the business, like many others in the craft and home creativity category, ended up benefitting from the curtailing of freedoms and the huge amount of extra time spent indoors. It wasn’t just luck that led to that result, however. It was also their investment in and understanding of e-commerce, as well as some shrewd moves before restrictions were announced. 

Will Radford and Luke Thompson (Photo: Ben Fahy)

Online sales now make up the majority of Honeysticks’ revenue, with the US by far the biggest market and seven countries in Europe making up the rest. In February, to their surprise, they noticed demand spiking in the US and Europe, so they ordered a whole heap of key ingredients and ramped up production. They had a feeling worse was to come, however, so they put as many crayons as possible into warehouses in their key markets so they could fulfil orders. 

During the nationwide lockdown in New Zealand, they bought a couple of new machines, hired more contract staff to add to their eight full-timers and added extra shifts at the factory so they could keep the crayons coming. 

The business has had double-digit growth year-on-year but this year it’s grown at more than 300%. And it’s a self-perpetuating cycle: more online purchases mean more reviews, which builds more trust, which encourages more sales. 

Around 30% of sales come from retailers, both online and bricks and mortar. And, again, despite the pair’s pessimistic predictions early on, their wholesale business is also well up on last year. 

Honeysticks also has its own Shopify stores, an Australasian store that was soft-launched late last year and a US store that launched during lockdown. That currently makes up a small chunk of its sales but, as more people search for natural products online, it has become an increasingly important part of the brand’s digital presence and they believe it’s fuelling the growth of its wholesale business as distributors and retailers start noticing the brand online and ask to stock it. 

The pair say the goal has always been to offer a range of different ways for customers to buy their products, and the ability to keep selling online this year was their saving grace. While they have had to pause new product development plans, the rise in demand for existing products online has meant they have instead focused on increasing production and have expanded into Canada, Australia and Singapore and will launch in India soon. 

In 2020 Honeysticks has grown by more than 300% (Photo: Ben Fahy)

Pace aplenty

Rapid adaptations like these show the “hockey-stick-shaped innovation curve” that has been created by the lockdowns and limitations of 2020, says Ivana Tranchini, Visa’s head of products and solutions for New Zealand and South Pacific. Under the pressure of this year, trends that were already growing at a steady pace took off out of necessity. 

Technologies can have all the promise in the world, but they often need to find a practical use – the “killer app”, in Silicon Valley parlance. QR codes, for instance, are a technology that never quite found their place in New Zealand and, in some cases, were actively scorned, but along comes the New Zealand Covid Tracer app and we start scanning like crazed Robocops. 

“If there’s a desire to do things more quickly, efficiently or safely, the technology eventually finds its place in the world,” she says. 

And she says a similar trajectory can be seen with digital payments and e-commerce. For many businesses, e-commerce was the only way they could keep trading during lockdowns and, for many people, the only way they could keep buying, so that’s what they did. Contactless payments for in-person transactions were also seen as the safest option from a public health perspective (in New Zealand, the payments industry worked together quickly during level four to increase the contactless limit to $200). 

Ones and zeroes

The shift from notes, coins and paper-based transactions to, as Visa’s founder Dee Hock envisaged, photons and electrons flowing across a network at the speed of light has enabled the speed of commerce to increase rapidly – and Kiwis have been at the front of this change.

Tranchini says our willingness to use new technologies has laid the groundwork for some of the changes to consumer behaviour and diversification of business models we’ve seen as a result of Covid-19. 

She points to food wholesalers whose markets shrivelled overnight but quickly moved to a direct-to-consumer model, delivered via secure e-commerce. 

“In many cases, they were able to make that shift in a couple of days, and, just as working from home wouldn’t have worked if the infrastructure hadn’t been developed over time, the infrastructure that enabled that to happen has been building for years.” 

Ivana Tranchini, Visa’s head of products and solutions for New Zealand and South Pacific (Photo: Supplied)

While these e-commerce efforts didn’t replace their traditional revenue streams, the accessibility and affordability of the technology at least allowed coffers to be partly filled and, when combined with government assistance, enabled many of them to stay afloat until the return to semi-normal. 

Just as businesses were forced to change, she says 2020 has also broken down barriers for those who may not have shopped online before. 

“A lot of people thought ‘actually, this isn’t so bad. It’s quite easy’.”

According to a NZ Post study, there were 172,000 new online shoppers for the six months to June 30; 71% of online spend in New Zealand was through domestic retailers; and there was 62% growth in spend among over 60s compared to last year. 

Ca$hing out

New Zealand is already one of the lowest-cash economies in the OECD. Some of the Nordic countries are all but cash-free now (in Sweden, that’s partly due to the work of a member of Abba) and judging by how quickly contactless payments have accelerated, Tranchini thinks it’s a trend that will continue to gain pace in an increasingly digital world. 

“Physical cards still have a place,” she says, but people are also choosing to pay with their smartphone or wearable device. 

“One of the next evolutions is tap to phone, where you can accept contactless payments via any current generation Android smartphone or tablet.”

Tap to phone removes a physical point-of-sale terminal. A buyer can hover their contactless card or smart device over a merchant’s smartphone, which acts as the contactless hardware used in store.

It’s now live in 15 markets around the world, and Visa is working with its partners to accelerate its availability here in New Zealand – it’s what Tranchini calls another example of “e-commerce in real life” and it shows just how influential the smartphone has been for payments innovation, both for consumers and businesses. 

“I started working for Visa in Singapore when smartphone payments started becoming a thing. That was only seven or eight years ago and it was just about using your mobile at the point of sale. Now it’s about receiving payments, facial recognition and the phone as the centre of so many experiences.”

She points to the social platforms as evidence of that shift, where users can now see a post and safely buy something in a few clicks. 

Goodbye passwords, hello biometrics

While it might seem like there are already enough ways to pay, Tranchini says there will continue to be enhancements, both in terms of seamlessness and security. An example of this is the move away from pins (RIP 1234) and passwords (see you later “password”) to biometrics. According to Visa’s research, one in five New Zealanders use the same password for every account and 52% use the same password for multiple accounts. 

“Nothing can replace ‘you’ as a password,” she says. And, with the rise of contactless mobile payments and biometric smartphone features like facial recognition and fingerprint, she doesn’t believe it will be too long before pins and passwords are rendered obsolete either. New Zealanders seem to agree, with more than 65% of New Zealanders seeing biometrics as faster and easier than the traditional password and 42% already using biometrics for banking and payments on a weekly basis. 

“Pins and passwords have worked well in the face-to-face environment, but the thing about biometrics is that it brings together face-to-face and e-commerce in an interesting way.” 

Tranchini says some grocery stores overseas are experimenting with palm scanning and vein recognition for payment. 

But why wait in line to pay when you could do your shopping and walk out? In the future, we might be checking in, rather than waiting in line to check out. 

In keeping with the gradual shift towards so-called “invisible payments” (and the Covid-19 related shift to physically distanced payments), Countdown is piloting a scheme at the Ponsonby branch where you scan items as you go and pay for them from your smartphone app without having to line up at the cashier (smart scales in the produce department can even tell what fruit and veg you’ve chosen). 

A fraction too little friction? 

Friction is something technologists often try to remove and that was one of Dee Hock’s main goals around 62 years ago when Visa was founded. But, as we’ve regularly seen, making things too easy can lead to unintended consequences. In the payments space, it’s the potential for fraud and illegitimate spending, and Tranchini admits striking a balance between an amazing customer experience and security is tricky, but incredibly important – especially as customer expectations have evolved to the point where a few second delay at the online checkout might be enough for us to abandon a purchase. 

(Getty Images)

“Our objective is still to make the payment experience as frictionless as possible. But we’ll add some friction into the system if it helps make it secure. There will always be a better, faster way of doing things, but security moves at the pace of innovation, because it still needs to have security inbuilt.” 

Tranchini says as payments have evolved over many years, so too has security, with global fraud levels at historic lows – less than 0.1%. With commerce moving to digital channels, it’s important to not let our guard down, she says – it’s why Visa invests in a suite of online security capabilities, from advanced AI to tokenisation technology, to identify and combat fraud before it impacts businesses and consumers. 

Staying inside the lines

Tranchini says there’s a tendency to think about how technology will create new ways to pay, but for many businesses, getting the back end right is just as important. Technology allows businesses to run more efficiently and there’s plenty of evidence to show that the ones that invest in software and money-management tools have more transparency over their operations and higher productivity. 

For Honeysticks, while they were already highly digital, the Covid-19 saga highlighted the fact that their reporting wasn’t quite sophisticated or frequent enough to ensure they were on top of everything and Thompson says if they hadn’t been forced to start looking at real-time sales stats due to the increased demand, they wouldn’t have been able to keep up. 

“The data is so good now and it flows right through the business: customers want products right now, and they’re willing to pay for it, so we need to be able to offer that,” Radford says. 

Radford says most of his career has been guided by gut-feel, with data used to back up his intuition. And, to a large degree, it still is. But, as Thompson says: “I think we’ve got more of a trained gut now.” 

Honeysticks was built on gut feel informed by data (Photo: Ben Fahy)

Opening up the world

Business success is often a wiggly line, with occasional moments of joy punctuating years of hard graft. And it’s even wigglier now given the virus-related uncertainty. For Thompson and Radford it’s been a tough, surprising but ultimately very rewarding year. But one of those occasional moments of joy arrived recently when they saw Honeysticks’ ranking in Amazon’s search results. While the brand has long been at the top when it comes to natural crayons, a search for the generic term “crayons” showed just one company ahead of them, a globally recognised brand used by households for generations. 

“We thought, ‘this is real’,” says Thompson. “We’re not just a little bespoke crayon manufacturer. We’re taking on the bigger players by producing a unique, natural product for our children and the environment.” 

Tranchini says there are so many ways for small businesses from small countries like New Zealand to gain customers these days. And while she’s professionally invested in continuing that trend, she has also benefited personally from this evolution. 

“I love to cook, so most of the things I buy are food, and contactless is available for most of my purchases so I use my phone. But buying online is quite a big deal for me. My whole family is in Australia. My niece and nephew, they’re 9 and 6, so I buy birthday and Christmas presents for them and sometimes I surprise my sister with a massage voucher or pre-pay for dinner for her and her husband. I’d be a much worse sister and aunty without e-commerce.” 

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