How payments can adapt to the Covid-19 pandemic
This report summarises the serious impact of Covid-19 on the payments industry, albeit with varying levels of severity across different areas of payments and sectors. McKinsey has set-out guidance for how firms can best adapt in the immediate term and why now is the time to reconsider your business’ future priorities. As with many industries, whilst we currently find ourselves in an unprecedented “new normal”, the post-Covid-19 world of payments will not simply revert back to what it used to be.
Here is a summary of the report with a link to the full article below.
The impact of Covid-19 on payments
The economic impact and disruption from Covid-19 will be profound. Payments transaction volumes and revenue will be down significantly. McKinsey estimate the decline to be 8-12% but this may prove conservative depending on the timescales and severity of various countries’ lockdowns. The extent of the downturn will also naturally vary by sector with the Tourism, Electronics and Automotive industries being the most severely disrupted (due to both demand and supply chain disruption). The e-commerce sector is experiencing less of an impact with buoyant demand offsetting supply-side challenges.
Cross-border B2C & B2B payments, retail merchant-based services and classic point-of-sale transactions have been most critically impacted. Only online payments, especially in sectors such as food delivery, are bucking the downward trend.
Short-term focuses: supporting customers & adjusting your portfolio
Payments firms must look to make simple e-commerce platforms available to customers who require alternative payments solutions – for example, if their business has effectively been forced to migrate to digital channels. Those firms that are able to offer quick access to simple, affordable, secure platforms have a competitive advantage in the current climate. Payments firms might also look to support vulnerable business customers by reducing or waiving fees.
Adjusting and/or diversifying your offering may be necessary. Global payments businesses are seeking to work with governments to support facilitation of relief payments to businesses and individuals. Others are providing access to analytics-based cashflow forecasting to enable FDs to model likely impact and corresponding repercussions.
Future focus and considerations
Whilst we’re all adapting to “the new normal”, we need to give consideration to “the next normal”, recognising that we won’t simply revert to the way things were. The payments ecosystem needs to develop the payments solutions that will allow customers and economies to emerge from the current crisis efficiently, and to define their post-Covid-19 future.
McKinsey lists ten potential considerations of which the headlines are:
- Covid-19 will accelerate the death of cash and the growth of touchless (contactless cards, digital wallet on phone or wearables). Payments firms therefore need to accelerate their design, build and promotion of digital omnichannel solutions.
- Universal access enhances system resilience. The unbanked and those merchants without digital payment solutions are those most impacted by the pandemic and the industry must work to create access for all.
- Invest in creating richer digital wallet solutions and experiences. For example, as well as facilitating payment, could the digital wallet provide information about how busy a shop is, to help maintain the likely ongoing focus on social distancing.
- Banks may need to reconsider their payments solutions. Payments-as-a-service business models, in their infancy before the crisis, are likely to get a boost, particularly where they can provide relief for constrained IT budgets.
To read the article in full, please click here.