“I’ve never seen our world change as fast as it is right now,” said Dan Schulman, president and CEO of Paypal, at the 2018 Restaurant Leadership Conference in April. “Things are changing dramatically, and technology is not immune from that.”

One area that technology is disrupting: payment. Instead of simply relying on cash, payment has become omnichannel. In its most common form, payments via credit and debit cards are becoming more secure through EMV terminals. But now, restaurants are grappling with NFC technology and digital wallets, in-app and other virtual payment, peer-to-peer models and more.

All of these new methods of payment are being dictated by consumer demand. “It goes back to customer preference: Is that the way people prefer to pay?” says Laura Chadwick, director of commerce and entrepreneurship for the National Restaurant Association.

How do your customers like to pay?

Source: Technomic Consumer Brand Metrics

While it’s not totally out of the picture, cash is no longer king. In 2017, global payments made using cards overtook use of cash: $23.3 trillion versus $20.4 trillion, according to The Future of Commerce report Visa conducted in partnership with the National Restaurant Association. For restaurant customers specifically, noncash payments dominate. According to Chicago-based market-research firm Technomic, only 39.9% of consumers say that cash is their preferred payment method. Just more than half of consumers (51%) name credit, debit and other electronic payments as their go-to methods. (Just 0.5% say app is preferred.)

While the idea of getting rid of cash is a hot topic right now, it’s only one of the many areas of the commerce ecosystem operators are exploring. “Change happens quickly, and most companies have a very hard time adapting,” said Schulman, and changes to accepted payment is no exception. The restaurant industry, in particular, has a reputation of taking a long time to embrace technology. But as consumers gravitate away from dollar bills and toward alternate payment channels, operators have no choice but to keep up.

Pushing toward—and debating—cashless

Restaurant chains such as Starbucks, Sweetgreen and Shake Shack have toyed with cashless locations, with varying degrees of success. Danny Meyer, CEO of Union Square Hospitality Group, published a letter on LinkedIn in June saying his operation will expand its cashless policy to more and more of its restaurants (several of its counter-service spots already eliminated the use of greenbacks). He promoted the practices as a way to bolster safety, efficiency and speed, saying that employees are safer when there’s no cash on-site and guests are served faster if everyone uses a card.

But the move to cashless is not without controversy. A new bill in Washington, D.C., called the Cashless Retailers Prohibition Act of 2018, aims to make it illegal for restaurants and other retailers not to accept cash. The reasoning behind the bill suggests that cashless concepts are discriminatory both against youths as well as lower-income consumers who may not have access to a credit card. The bill also wants to ban restaurants from charging different prices based on the type of payment used.

Danny Meyer, CEO of Union Square Hospitality Group

“Policies can be broken in the name of hospitality, and if someone wants to enjoy our food or drink, yet is only able to pay with cash, it is unlikely that we would turn them away.” —Meyer

Meyer’s response to the “socioeconomic implications” of USHG’s cashless rollout is that the benefits—particularly from a safety-of-staff perspective—outweigh the impact on what he calls a “small segment of our guests.” Leaving a little wiggle room, Meyer did say that restaurants will evaluate guests who only have cash on a case-by-case basis: “Policies can be broken in the name of hospitality, and if someone wants to enjoy our food or drink, yet is only able to pay with cash, it is unlikely that we would turn them away.”

The National Restaurant Association is taking the stance that the individual restaurant knows best, as operators can look at their guests’ own transaction histories to see how its customers are paying, taking that into account when developing payment policies. Plus, says Chadwick, while safety and speed are clear benefits of going cashless, there are other benefits—namely eliminating some of the hidden costs associated with cash. Settling out at the end of the night and making deposits, for example, take labor and, thus, cost money. “Government policy—one way or the other—wouldn’t allow for that flexibility,” she says.

The conversation around cashless, however, is primarily focused on the limited-service market.

Payment shake-ups have been making headlines for years

What about full service?

The implication and adoption of cashless and other high-tech payments is more seamless in the limited-service market. Full-service concepts still operate under the traditional model in which consumers hand over their cards to be taken away by servers.

At this point, technology providers are really thinking through what a more frictionless payment process might look like in the full-service space. Some brands are seeking in-app solutions in which customers pay via mobile, while others are looking at different technologies such as tabletop and handheld terminals. Still, there’s not been as much adoption of any of these methods in the U.S.

“Is there a uniform solution [for full-service restaurants]? Not that I see right now,” says Tor Opedal, VP of account management for Mastercard. There are some options from startups, however, to keep an eye on. One company, for example, is testing an electronic billfold, that lets customers insert an EMV-enabled card or tap a smart device to pay. The process of a server handing over a bill still looks the same; it’s just modernized into an electronic format.

The internet of things gets even bigger

The shift in liability that credit card brands enacted in October 2015 really fueled the conversation around whether or not operators should upgrade their payment terminals right away. At that time, chip cards hit the mail and the liability for the “card-present” subset of fraudulent transactions shifted to the operator. In instances in which a counterfeit EMV card is swiped as a mag-stripe transaction, liability falls on the operator using an old swipe processing system.

Still, operators have the choice of whether to upgrade to EMV terminals. The fact remains that there is no federal oversight, and there are no regulations around use of EMV terminals; the liability shift is about the operating rules of the credit card brands.

“We are all connected to the internet.” —Dan Schulman, Paypal

While many of the large quick-service chains have made the switch, some restaurant brands don’t see the upfront return on investment in upgrading their payment terminals before they absolutely have to. “They aren’t seeing fraud and aren’t getting chargebacks big enough to make the purchase of an upgraded EMV system worthwhile,” says Chadwick. “These restaurants will update their payment terminals as the terminals age out, and at that time of upgrade [will] find the best out there.”

“At this point, EMV is practically standard,” says Chadwick. And the vast majority of EMV terminals also have NFC (near field communication) capabilities, says Opedal. In other words, these payment readers have the technology that allows two devices, such as a smartphone and terminal, to talk to each other when they are close together. While mobile wallets, such as Apple Pay, Android Pay and Samsung Pay, haven’t totally caught on with consumers yet, there is a growing consumer set using this type of contactless payment.

“It’s the same technology behind it as EMV, but it’s much speedier, since the consumer can use their phone or other [internet of things] device,” says Opedal. Still, many operators are resistant to turning on the technology. The reason, both Opedal and Chadwick agree: If an operator accepts one NFC wallet, they have to accept every wallet—they can’t pick and choose.

“There are hiccups in acceptance for all wallets. Different acceptance rules,” says Chadwick. Some operators also have trepidations about the kind of data different wallets are extracting, says Opedal. “Still,” he adds, “it’s the fastest and safest.” There’s definitely an upward trajectory of these types of payments; it’s just a matter of how steep the line is for acceptance at this point.

Make way for mobile

There’s a lot of interest in digital ordering and payment, too, and it seems that the majority of chain restaurants either have or are at least thinking about branded apps. From a payment standpoint, however, this is still a point of friction—especially in the full-service environment. Less than 1% of consumers say that restaurant apps are their preferred method of payment, Technomic finds. With smartphone real estate so valuable to consumers, they are more likely to download and use nonbranded apps that connect them to a variety of restaurants and retailers.

“We are being redefined by mobile. … Mobile will allow people to get much closer and more intimate with customers than ever before, but we need to rethink value propositions we have,” said Schulman of Paypal. In that vein, there are other apps and technologies that are gaining favor, many of which are partnering with restaurants.

“We’re still in the early generations of Alexa,” says Chadwick, of Amazon’s voice tool. That muscle memory of order-and-pay via voice is still being cemented by Amazon, Google and other voice-recognition players.

There’s also a future in peer-to-peer-style payment models, such as Venmo, which was purchased by Paypal. “There’s a lot of room here that’s different and not enabled by the card network,” says Chadwick. And that includes payment via social media channels, such as Facebook, as well as competition from other features such as Apply Pay Cash and Google Pay.

Payment via these other channels has, in fact, proven to be a competitive space of its own. Snapcash, Snapchat’s payment service run in partnership with Square, shut down at the end of August.

“It goes back to customer preference: Is that the way people prefer to pay?”—Laura Chadwick, National Restaurant Association

Because of that changing and competitive market, many forward-thinking operators are putting teams in place to help them stay ahead of payment technologies. Domino’s, for example, has been able to be flexible and innovative because it has hundreds of programmers and data scientists, says Tim McIntyre, the company’s EVP of communications, investor relations and legislative affairs. “Whether it’s their laptop, iPad or smartphone, we want to be where our customers are in terms of ordering,” he says. The team started with taking advantage of the whole new world of technology, with the mindset of trying different digital platforms, failing fast and learning along the way, he says.

Cava Grill, a Mediterranean fast-casual chain, has a similar approach, with on-staff data scientists interpreting consumer behavior. One thing it has found, said CEO Brett Schulman at the Restaurant Leadership Conference, is that consumers are using these new technologies—whether or not a restaurant has them in place—especially when it comes through the smartphone. “As customers become conditioned to having a remote to the world with a smartphone, a brand with tech can be malleable to that remote control,” Schulman said. “Whether five units or 5,000, customers are conditioned to function one way.”

The next frontiers

Is bitcoin technology the future of payments? After all, Starbucks announced in August that it was teaming up with Microsoft and Intercontinental Exchange to let customers use cryptocurrencies to buy items in stores. The companies are working on a platform called Bakkt, which will allow users to store digital currency that can be exchanged for products. In this exchange, Starbucks won’t accept the cryptocurrency directly, but the platform will turn customers’ digital currencies into dollars that can be used. Bakkt itself is expected to launch in November.

Experts, however, don’t expect cryptocurrency to be a huge wave of the future for restaurants. “It’s more of a marketing play,” says Chadwick.

Instead, “What we’re talking about a lot now is frictionless commerce,” says Opedal. Consumers have a digital identity, whether it’s by smartphone or other internet of things device. Because of this, the next iteration of payment is even more frictionless, without any physical payment taking place.

This is already happening in concepts such as Amazon Go: Consumers enter the venue, grab what they want and leave, being charged automatically. Because of that digital identity, these guests are credentialized for payment. That’s truly frictionless, says Opedal, versus today’s methods that are still a bit staccato, because consumers still have to stop what they are doing to pay.

“If a consumer prefers to pay in certain media, we need to make sure they can do it in a safe, secure and speedy way.” —Tor Opedal, Mastercard

This is the area with the largest potential for change over the next few years, he says. The differing factors and technologies will just depend on what has been credentialized for security and payment. It may be a biometric authentication of a consumer’s car near the drive-thru, or it could be a consumer checking into a restaurant. “It’s that handshake between you and the POS that is safe and secure and has been authenticated as you,” says Opedal. It still hasn’t all been fleshed out, though. “Safety and security are the underlying non-negotiables,” he says.

To get to that more advanced step, operators as well as tech vendors need to look at their overall commerce platform. Operators should look at the POS as a proxy that different ordering and payment suppliers can plug into, whether it’s third-party deliverers, app orders, Alexa and other voice technology, connected cars or something else, says Opedal. “It’s crucial to have an environment where third parties can plug into you; otherwise, it becomes very cumbersome and less frictionless,” he says.

And then, above all else, make sure that method of payment is secure through encryption and tokenization. Operators shouldn’t store credit card numbers; instead, they should have dummy numbers that have been turned into an encrypted code beyond the firewall. That way, if there is a breach, what is stolen is useless. “Having a good payment ecosystem that’s fully tokenized … goes hand in hand with a good commerce platform,” says Opedal.