Other parts of this series:
My previous post looked at the tremendous impact the COVID-19 pandemic has had on consumer spending in Europe to date. This time, we’ll shift focus to the future and unpack what the pandemic will mean for key industry verticals and channels in Europe.
The projections will focus on the card issuing and merchant acceptance segments of payments. The model we’ve developed for these projections is based on government lockdown measures put in place at the start of the outbreak and examines the six markets in Europe that have been most affected by COVID-19: the UK, France, Germany, Spain, Italy and the Netherlands. These markets also account for roughly 70 percent of payments revues in Europe.
1. COVID-19 is likely to accelerate the decline of cash
Cash has been losing popularity as a payment tool in Europe for years. The pandemic is set to put another nail in the coffin.
Our model predicts that cash usage will decline between nine and 11 percent in 2020. The most pro-cash market in our model is Italy, where cash usage could shrink a mere five percent. The most cash-averse market in our analysis is the UK, where it could decline 28 percent.
Since cash transactions increase the risk of virus transmission, all markets have a strong incentive to move away from cash. Consumers are already looking for opportunities to shift to e-wallets, mobile payments and contactless payment choices.
In-store merchants are also incentivized to move away from cash, which should grow demand for digital payment acceptance solutions.
2. Point-of-sale turnover is likely to drop sharply, then rebound
Our model projects a three percent overall decline in point-of-sale card turnover in 2020 across the six markets we analyzed, down to €1,833 billion, after eight percent growth from 2018 to 2019.
We project that the decline will reach its low point over the summer and into September, before bouncing back modestly towards the end of the year.
Verticals identified with the steepest decline relative to their 2019 growth are travel (-32 percent), entertainment (-24 percent) and auto fuel (-23 percent). A few verticals (household and food & drink) will see modest growth.
E-commerce sales will also decline overall in 2020 according to our model, but less so than brick-and-mortar POS turnover. The model also projects healthy growth for select e-commerce verticals over the year: digital entertainment (34 percent), online groceries (19 percent) and gaming (16 percent).
3. Payment acceptance revenues could shrink 14 percent
Our model projects that overall payment acceptance revenues in the six European markets will shrink between seven and 14 percent in 2020. In our worst-case scenario, this represents revenue decline of roughly €2.2 billion, while in the best-case scenario the drop is around €600 million.
This decline will not be evenly distributed across all industries. For example, our model projects that commercial card issuers specializing in travel and entertainment payments face a particularly daunting challenge, with spending predicted to decline 62 percent compared with 2019.
Yet no part of the industry will escape the impact of the pandemic; it presents challenges in every segment of every market. But it is worth remembering, in times like this, that challenges can often be turned into opportunities.
If you’d like to discuss this research or any other aspect of payments in Europe, I’d love to hear from you.