The first blog in our Accelerating Payments series looks at how the Covid-19 pandemic has propelled payments digitisation, opening the door to a realm of future possibilities. With vaccines now being rolled out, signalling hope that an end is in sight – will payments revert or will the trend continue?
It is likely that we won’t understand the full extent to which COVID-19 has changed our lives until we are looking at the pandemic in a rear view mirror. As people have remained home (and isolated) during the pandemic, they have resorted to purchasing many of their daily needs online.
It is easy to assume that the pandemic has significantly accelerated the shift towards digital payments. A report into the impact of the pandemic by the International Monetary Fund pointed out that ‘digital financial services allow for social distancing, which is of particular value during the pandemic’, and in April 2020 the World Health Organisation recommended the use of contactless payments to slow the spread of the virus.
Research shows that contactless payments, which were already increasing in many parts of the world as a result of legislation and initiatives such as Europe’s Payment Services Directive and Single European Payments Area (SEPA) have soared, particularly for low-value purchases; according to Mastercard, three-quarters of its transactions in Europe are now contactless.
Mobile payments have also increased sharply – in the US, 56% of retailers are now accepting e-wallet payments, compared with 44% before the pandemic.
The underlying story, though, is more nuanced. While the use of contactless card payments has increased, the shutdown of the retail sector in many countries has resulted in a sharp fall in economic activity and point-of-sale acceptance volumes. EY estimates that total payment transaction volumes in Europe will fall by around a quarter this year.
It is also clear that bank payment volumes, especially B2B payments, have dropped during the pandemic. Around $130 trillion of B2B payments are made every year but according to the consultancy firm Bain, the hardest-hit sectors represent about 60% of this total volume.
The pandemic has highlighted the risks inherent in analogue payments systems and the benefits of switching to digital alternatives. According to a study from Mastercard, 76% of small businesses in North America say that the pandemic has persuaded them to become more digital, with 82% changing how their business sends and receives payments – and 81% said this has led to higher levels of customer satisfaction.
What can we learn from this emerging data? The evidence that digital payments is an accelerating trend seems convincing and is unlikely to be reversed. The higher limits introduced for contactless payments are likely to remain in place, and the momentum towards a cashless society has increased (ATM transaction volumes in the UK fell by 62% between 2019 and 2020, according to the FT).
Overall, the consensus is that demand from consumers for innovative digital and flexible payment methods is rising and that businesses know that meeting this demand is vital if they are to retain customers in a fast-changing landscape.
With tight profit margins and stiff competition, firms that can make payments quickly and efficiently, via automated systems, will succeed in streamlining their operations and stay one step ahead of the crowded payments market.