Covid-19: the catalyst for change in the payment sector
There have been several industry reports released over the past few months analysing the changes in the payments industry. Many have analysed how the pandemic has changed the way we make payments. These changes were predicted before Covid-19 but since early 2020 we have witnessed a rapid shift from physical to digital payments.
McKinsey reported that although “80% of stores were closed, the payments industry has displayed undeniable solidity.” It was essential that both merchants and consumers should adapt. This shift has been seen across the world, even for countries where cash had been the preferred method of payment, such as Germany, Austria, Italy and Switzerland. Australia removed more than 2000 ATM machines and high street banks have been closed for good. McKinsey notes, “We know that changing payment habits has historically been a very slow and complex process. In this regard, the crisis has been a phenomenal accelerator.”
The move from cash to digital has made way for consumers to use a variety of new payment methods. PSE Consulting, in an interview with The Paypers, stated that “COVID has helped make digital payments a mainstream habit by encouraging consumers who were reticent to use new payment products to give it a try.”
The use of digital payments has steadily increased from 2016 to 2020. McKinsey notes that while digital payment adoption has grown as predicted the types of digital payment method have increased more quickly, with customers using two or more types regularly. This includes both in-app payments, online, and in-store tap to pay as well as peer-to-peer. Customers using two or more payment types have increased from 38% in 2016 to 58% in 2020.
The pace of change
It’s only within the past twenty years that the move towards digital payments has really taken hold. Beforehand, “of more than 200 systems introduced between 1993 and 2000, for instance, only PayPal emerged as a standout success.” We have seen the pace of change increase drastically in the past two years. Most recently ‘Buy Now Pay Later’ (BNPL) has been a marked change in the way that customer expectations and needs have evolved. BNPL launched in 2014 and has seen a quick adoption across mainstream consumer websites.
“Consumers already abandon online purchases at the slightest hint of friction, and are now searching for assurances that their online payments can be made securely and swiftly before they click ‘buy.’ Not fulfilling these expectations could negatively impact merchants’ finances as well as those of payment processors,” With more change, payment providers need to continue to reinforce the message about security. With a well reported rise of consumer fraud and scams by opportunists during the pandemic, the requirement for consumers to feel safe to pay online is paramount. “More consumers reported a deteriorating perception of digital payments security over the past year.” Without trust, payment technology may struggle to progress as consumers fear a lack of security.
Ingredients for success
Payment solutions need to match consumer expectation, which has accelerated almost as quickly as the technology itself. The key elements for the acceptance of payment methods are speed, ease, and trust, and any payment solution needs to tick these three boxes at the very least. Having a clear proposition that articulates the benefits to consumers will be essential, and technology must integrate seamlessly into customer’s online journeys and lives.
As well as changes in infrastructure, banks need to defend their market share and look for new ways to attract and keep customers. Meanwhile fintechs need to look for new ways to attract customers who are inert or dissatisfied with traditional methods.
“For the countries and payment firms that manage to respond effectively, the implications will be significant. For example, businesses that provide viable options for integrated and contactless payments to both customers and merchants are likely to emerge from the crisis stronger.”
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