Troubles at Worldline Highlight Cash’s Enduring Value as well as Vulnerabilities in the Digital Payments Sector

Troubles at Worldline Highlight Cash’s Enduring Value as well as Vulnerabilities in the Digital Payments Sector

While early November has brought a tenuous rebound, French digital payments firm Worldline is still reeling from a stunning nosedive. In the biggest freefall ever experienced by a CAC 40-listed company, Worldline’s shares plummeted by 60% on 25 October, slashing $4 billion of market value and prompting analysts to project its ousting from Euronext Paris’s benchmark index next month.

Coming after the company lowered its revenue and growth forecasts amid Europe’s economic headwinds, Worldline’s woes reflect the wider malaise of the digital payments sector in recent weeks, which  beyond a potentially-looming recession  faces a series of technical, financial and fraud challenges.

In this fraught climate, cash is making a notable comeback in Europe, while innovative tech solutions are emerging to fend off new security threats to digital transactions, underscoring the fundamental importance of safeguarding old and new payment methods to maintain stable, high-confidence and consumer-friendly economies.

Changing fortunes of digital payments

The unfolding earthquake rattling the digital payments sector is a far cry from its recent heyday.

In 2020, the COVID-19 pandemic significantly accelerated the shift from cash to digital payments, amid retailer and consumer health fears and lockdowns pushing people towards online shopping. According to Adrian Buckle of UK Finance, cash’s decline was already well underway in the previous decade before plunging to 17% in 2020, with Worldline and PayPal among the big winners of the digital economy transition.

Yet the cost-of-living crisis and high interest rates to rein in inflation have constrained consumer spending and investment activity, sparking fears of a potential European recession that has sent digital payments firms on a downward spiral. Worldline’s recent blow brought its share value to under 15% of its record-high, while the same week saw London-listed CAB Payments drop 72%, Italy’s Nexi fall 20% and Dutch payments processor Adyen lose 11% after halving in August.

Looking beneath the surface

Given the post-pandemic rebound of in-store shopping, even PayPal is trading at barely one-sixth of its 2021 valuation. However, brick-and-mortar stores are posing their own problems for payment fintechs, with McDonalds, Carrefour, Ikea, FNAC and Monoprix among the major retailers hit with chaotic, France-wide outages of Worldline payment terminals in late October and again in early November, forcing customers to pay in cash or leave their items behind – adding another blow to a retail sector grappling with Europe’s economic slowdown.

What’s more, the e-payments industry faces mounting fraud and security problems, with Worldline recently noting concerning “patterns of cyber-crime behavior” among certain of its German clients. In September, Germany’s financial watchdog, BaFin, barred a Worldline joint venture’s commercial relations with certain clients due to money-laundering risks, while in July it restricted the operations of a local subsidiary over its failure to tackle fraudulent clients.

Last year, Germany’s Unzer was fined for its inadequate anti-money laundering and organised crime controls, while the UK Financial Conduct Authority recently expressed its concerns to the corporate leaders of a sector still recovering from Germany’s Wirecard fraud scandal. As international banking consultant Bob Lyddon has commented, “there’s no doubt that an element of trust has gone for investors.”

Emerging comeback for cash

Amid this perfect storm of economic turbulence, tech failure and financial crime, cash has been mounting an unexpected comeback.

Last year, cash transactions in the UK rose for the first time in a decade, posting a 7% hike to hit 6.4 billion payments. Given the cost-of-living crisis, UK Finance has concluded that shoppers are returning to cash to better manage tighter budgets, mirroring the assessment of the UK Post Office, which reported a single-month record of £3.3 billion in cash deposits and withdrawals in 2022, leading its Banking Director Martin Kearsley to comment that “Britain is anything but a cashless society.”

Meanwhile, Sweden’s central bank, Riksbank, has been pushing for brewing legislation to guarantee consumers’ cash payment rights – mirroring Austria’s bold bid to establish a constitutional “right to pay in cash” – after many of the country’s retailers began requiring digital transactions. Riksbank Governor Erike Thedeen has rightly argued that “the position of cash needs to be strengthened” to “avoid people suffering digital and financial exclusion,” particularly as socially-vulnerable groups, rural SMEs and isolated consumers rely heavily on cash – still the most frequently used point-of-sale payment method according to the European Central Bank (ECB).

In terms of security, Riksbank has highlighted food, fuel and pharmaceuticals among the essential commodities that must be accessible with cash, citing cash as the “only viable means of payment” during power and telecoms outages. Moreover, as the ECB has noted, “cash has proven to be secure in terms of cybercrime, fraud and counterfeiting” while remaining the only payment method that protects personal privacy. In France, where over 90% of the population reports regularly using cash, over 80% fear that a cash-less world would lead to more surveillance.

Recognising Europe’s enduring cash demand, Executive Board member Fabio Panetta has expressed the ECB’s commitment “to ensuring that consumers remain free to choose how to pay, both now and in the future.

Shoring up digital ecosystem

While cash’s long-term future is clear, it should be seen as an essential complement rather than a complete replacement for digital payments, meaning that robust safeguards must be implemented to tackle the latter’s vulnerabilities.

Advanced digital technologies are a critical part of the answer, with AI, machine learning and blockchain solutions offering payment platforms algorithms for real-time fraud detection and blocking of suspicious transactions. Blockchain technology has emerged as a particularly vital tool for securing cross-border transactions, providing an innovative alternative to the high costs and long waiting times of the traditional financial institutions that have long managed international payment systems.

On the regulatory front, EMVCo’s global card and mobile payment security standards are helping to fill the ant-fraud gap created by retailers’ weak compliance to the Payment Card Industry Data Security Standards – whose poor protection against new cyber threats has led to major data breaches. Finally, as BAFT VP Deepa Sinha recommends, financial institutions must adapt regulations to specific payment contexts to maximize effectiveness, while boosting collaboration with fintechs and cybersecurity firms to strike the right balance between safety and innovation.

With Worldline’s dramatic nosedive exposing the societal risks of relying solely on the digital payments ecosystem, the future of economic and payments security will rely on tried-and-true cash, combined with strong regulations and hi-tech innovation to bolster the digital system. Moreover, this dual payment approach will go a long way to reassuring citizens, helping create reliable economies and resilient, inclusive growth.

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