We’re living through extraordinary times right now. The COVID-19 pandemic is changing business—and much else—forever.
The global payments ecosystem has proven resilient in the face of the pandemic. The general public continues to trust payments systems and providers, and no substantial outages of core infrastructure have been reported.
But the industry is far from immune to the impacts of the crisis.
The biggest changes for payments providers due to the pandemic include an increase in non-performing loans, a reduction in revenues and greater demand on customer service teams. Total payment volumes have shrunk due to the reduction in consumption and trade.
In the short term, this will force payments providers to make operating model changes, likely prioritizing greater flexibility and new short-term goals.
The long-term impacts of the pandemic on global payments are likely to be even greater.
Here are the top eight.
1. A strong push towards a cashless society
Early in March, the World Health Organization warned that banknotes may spread coronavirus. The WHO recommended using contactless payments where possible to help control the virus. COVID-19 further undercuts the use of cash by forcing many retailers to close their doors and sell exclusively through online orders for delivered goods.
For these reasons, the pandemic is driving adoption of contactless payments in a major way. It is unlikely that it will end the use of cash everywhere, of course, but it may be enough to push many markets towards a new cashless paradigm.
2. A new need for fraud protection
It’s an unfortunate truth that any crisis presents opportunities to criminals. With radical change occurring at high speed around the world, many new loopholes are opening up for fraudsters. Common COVID-19 scams include impersonating public health authorities or other government organizations and demanding payment from the targets.
In response, large merchants and financial institutions will need to make significant investments to improve fraud prevention and detection. Artificial intelligence and machine learning can both make a significant difference in this area.
3. A changing trust equation
The pandemic may change the nature of trust in payments for two reasons: The first is the aforementioned rise in fraud, while the second is the generally higher level of economic distress worldwide. As money gets tight for businesses and individuals alike, payments will be watched very closely.
This may act as the missing catalyst needed for widespread adoption of distributed ledger technology in payments. Blockchain solutions to track assets and payments could also get more traction, especially in trade finance.
4. A tougher environment for payments fintechs
The drop in the number of global payments means a decline in fees for payments solutions providers. This will impact every aspect of the payments industry, but payments fintechs may feel the pinch more than anyone else as investment capital seeks low-risk environments.
Fintechs should prepare for a less friendly funding environment. Some may be able to accelerate their path to profitability while others may wish to investigate partnership with an established financial services organization.
5. Tighter cashflow management
The pandemic has pushed a huge proportion of the world’s population, along with businesses of every size, into challenging financial situations. As a result, general scrutiny of all outgoing cashflows is likely to increase.
On the level of individual consumers and small businesses, the use of payments instruments like direct debits and recurring card payments is likely to shrink and be replaced by “request to pay” and other tools that allow for greater control.
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A market may be created at the enterprise level for more powerful expenditure forecasting dashboards with sweep, loan and savings features. From a transaction banking perspective, treasurers will also want better real-time dashboards with forecasts and actionable solution options.
6. Growth for tokenized mobile wallets
COVID-19 gives customers good reason to be wary of public payments terminals. Digital wallets like Apple Pay and Google Pay allow a payment to be made without even touching a card to a terminal or entering a PIN. Expect the use of token-based wallets to grow in the future, while the use of physical payments cards may shrink. Businesses that are unable to accept payments from digital wallets may experience constrained growth in the post-pandemic world, while peer-to-peer contactless payments, even between different types of wallets, should become commonplace.
7. An explosion in online shopping and other digital checkouts
With governments urging citizens to stay at home (and in some cases making it illegal to leave), there has been an explosion in the use of online shopping and delivery systems. Businesses like PayPal, Amazon and Instacart have seen huge spikes in demand. There are two major implications of this for payments providers and their customers.
First, anyone providing a sub-par online shopping and checkout experience is now on notice. For such providers, the clock is ticking to improve their systems.
Second, as more consumers turn to online ordering for everyday purchases like groceries, some consumers are likely to be annoyed by how repetitive the process is. If your grocery order is mostly the same most of the time, why should you have to enter it anew every time you order?
These online shoppers may be more open to ordering their routine items using devices enabled by the Internet of Things (IoT). This could include, for example, automatically purchasing groceries at an appropriate time. IoT-driven payments may grow through the roof in the years to come.
8. Changing customer behavior will drive digital innovation
Social distancing and other pandemic-mitigation measures are likely to boost demand for digital banking services. This will force many traditional payments providers to fast-track their digital innovation efforts. Legacy banks and payments players may wish to collaborate to better bring digital payments solutions to the marketplace.
The overall impact of COVID-19 won’t be known for months—if not years. The global economy may look very different when we get back to “normal”. The payments industry will have a key role to play in revamping the economy. Opportunities will include:
- Replacing cash and checks with digital payments systems
- Building infrastructure to support more merchants working remotely
- Adopting digital currencies into universal payments solutions
- Embracing cloud-based infrastructure, automation and analytics to reimagine scale
I encourage you all to read our report: COVID-19: How banks can manage the business impact. Also, if you’d like to discuss the impact of the pandemic on the payments industry, I’d love to hear from you. I can be reached here.