One year on and the impacts of COVID-19 on payments is clearer, with the industry looking forward to coming out of the storm. But what are these impacts and how will they influence the market? We have identified 10 impacts which the pandemic is likely to have on the payments industry in our latest article.
Here at NOIRE, we spend a lot of our time making sure that the merchants who work with us are fully up to speed with detail such as the Merchant Category Code and GDPR and data protection. While staying fully up to date with the latest regulations is clearly vital, we also understand how important it is to take a step back from time to time and review the whole of the payments landscape.
A recent report published by McKinsey pointed out that the slump in demand for goods and services experienced by virtually every major economy during 2020 dwarfed that which took place during the Great Recession from 2007 to 2009. The same report also claimed that the rate at which consumers put aside savings spiked by between 10% and 20% across the United States and Western Europe, with the annual rate in the US actually doubling during 2020.
This means that, if the roll-out of the vaccine succeeds in bringing Coronavirus under control and businesses are allowed to re-open, the bounce-back experienced by the economy has every chance of being strong and swift.
The businesses which are best placed to take advantage of any such bounce-back will be those which have maintained operational efficiency throughout 2020, and this applies as much to the payment processes they use as anything else.
The fact that virtually all commerce shifted to digital platforms in response to Coronavirus brought huge changes to the ways in which customers make payments and choose goods and services. As a new normal emerges some of these changes will be reversed but many will become permanent in nature, or will transmute into something different once again.
No matter what happens, your payment options need to be able to keep pace with the changes and to take account of some of the ways in which the global payment landscape has altered in the past 12 months:
The decline of cash
The shift away from cash was already well under way before the pandemic struck. According to the trade body UK Finance, the number of payments made in the UK using cash fell to an all-time low of 23% in 2019, down from 48% as recently as 2014. This shift was accelerated by the pandemic, which saw methods like cash and cheques being avoided and discouraged due to their potential ability to spread the virus. Your business needs to be ready for a situation in which cashless payments are not simply an option but represent the preferred norm for the vast majority of customers.
Access to digital
While the shift away from cash brings many advantages – particularly in terms of the global aspects of business – it does highlight the digital divide between those who have access to digital tools and platforms and those who don’t. According to the World Bank there are 1.6 billion adults around the globe who have no access to banking services, making it difficult, if not impossible, for them to take advantage of the newly emerging digital payments landscape. The most successful merchants in the future will be those who set up their payment options in order to offer the maximum possible access to the widest numbers of people, and this means working with a payments partner who can offer the latest digital choices.
The rise of Digital Currencies
The unsuitability of traditional payment methods during the pandemic might have been expected to prompt the rise of digital currencies as an alternative. But this didn’t happen. It seems the vast majority of people still find it difficult to trust – or indeed fully understand – how digital currencies work. This is likely to alter as more and more central banks around the world set up working groups to discuss the merits or otherwise of a central bank digital currency (CBDC).
The People’s Bank of China (PBOC) led the way when it became the first based in a major world economy to start testing its’ own CDBC in April 2020, and the Bank of England has published its own discussion paper on the same subject. The merchants who emerge from the impact of the pandemic need to be prepared for dealing with central bank endorsed digital currencies.
Many retailers who switched to online trading during the pandemic may never go back to having a physical presence, while those countries which have, until now, lagged behind somewhat in the roll-out of online commerce will find themselves forced to catch up with the Northern European, Chinese and North American markets. Omnichannel capabilities will enable merchants to offer payments in any environment, be it digital or physical, as this will soon become the minimum which customers expect.
Contactless payments have become the norm during the pandemic and this state of affairs is likely to endure as customer and merchant habits become embedded and the risk of a resurgence of Coronavirus becomes something which we all learn to live with. Many merchants have refused to take cash entirely during the pandemic, and this switch has doubtless been a great driver in the switch to digital payments. The ability to offer and emphasise contactless payment options is going to be a vital market differentiator in the future, and not being fully versed in the latest options could be a considerable barrier to growth.
As more devices become equipped to offer payments – with smart phones and watches leading the way – so the concept of a digital wallet will expand to cover other features, such as monitoring and reporting on transactions and sending alerts on issues such as merchant opening times. Your payment options will need to expand to take advantage of these capabilities and attract customers who come to rely on them.
The sheer volume of data which is generated by repeated digital transactions will be leveraged in the future to offer greater protection against fraud. We’ve already guided our clients through the introduction of Payment Services Directive 2 (PSD2), which included an increased emphasis on Secure Customer Authentication (SCA). The role which big data plays in payment processing is likely to lead to ever smarter forms of fraud detection designed to minimise the risk to the customer and merchant at the same time as making the process as friction free as possible.
The need to respond quickly to the challenges of coronavirus led to some governments relaxing some of the rules governing payments, with the most obvious example being the increase in the maximum contactless payment which could be made by card in the UK. This went up from £30 to £45 in April 2020 and is now set to rise again to £100.
Many UK banks also changed the rules on matters such as credit card and overdraft fees and mortgage holidays. The nature of change is such that some rules which were introduced temporarily are bound to go on to become permanent, and merchants need to be certain that they are aware of which regulatory changes have been made permanent, and which revert to pre-pandemic status.
All payment providers – and the merchants who rely on them – need to draw up an action plan detailing exactly what they would do to support customers/clients in the event of a similar crisis occurring in the future. Although the details of any such crisis are – by definition – unknown until it strikes, the action plans in question need to concentrate on enabling commerce to continue flowing despite the barriers that may spring up.
The volatility of the global currency markets – particularly in the early days of the crisis – coupled with the ease of online access led to something of a boom in the number on new clients opening accounts to enable spread betting on aspects such as the relative strength of different currencies.
Although many of these newcomers may well have lost money – thanks to a lack of experience and understanding of the reality of spread betting – a fair percentage are likely to continue to be involved in the markets as the crisis subsides. A payment platform like NOIRE offers the stability and security needed to take advantage of these kinds of opportunities.
As a new normal establishes itself we are at the forefront of helping clients to navigate through the maze of payment options, new regulations and shifting customer expectations which emerge.
Our expert team are here to deal with any questions you might have about the post-Coronavirus horizon, and help to make sure that the payments you depend upon continue to flow.
Get in touch with us today to find out more.