Though COVID-19 has wreaked havoc upon the global economy, the pandemic has presented an opportunity for innovation in the payments sector.
Consumer spending may have taken a hit in the last quarter, but the demand for new payment methods that are both convenient and risk-free is higher than ever. For instance, companies like Visa reporting growth of up to 150% in contactless payments since 2019 .
The decline of cash as a primary payment method was already imminent before the widespread outbreak of the virus. The outbreak has further accelerated the need for online payment solutions. The overall trend is likely to result in longer-term changes to the industry coming around sooner than expected.
So what does the future of payments look like in a post-pandemic world?
An upsurge in online payments
Online payments were already on the rise, thanks to the increasing popularity of e-commerce and the rapid increase of card acceptance amongst small businesses.
Now, the public is concerned about the transmission of the virus via physical cash. This has further created a demand for online payment solutions, despite scientific evidence suggesting that the probability of transmission is much higher for other frequently touched objects.
This has led to a corresponding decline in ATM withdrawals in the UK, and although some of it can be attributed to increased social isolation measures, the coincidence with the increase of cashless transactions is likely to drive longer term change in the payments ecosystem. Businesses will need to offer a variety of new payment methods in order to provide greater flexibility to customers.
A gradual shift to cashless
In the short to medium term, neither merchants nor consumers are equipped for fully digitised payments. Even cashless payments currently operate on a hybrid model, given that large card transactions generally require physical authorisation via a PIN or signature.
In the longer term, as consumers get more comfortable with cashless transactions, online retail will take the main stage, and businesses will need to invest in robust online payment gateways and e-commerce driven business models in order to serve online audiences.
While an economy based entirely on cashless payments is especially appealing at present given its ability to withstand the shocks of future pandemics, it is important to consider the potential implications that such shift could hold for those who depend on cash as their primary payment method. A gradual transition would be key to sustaining these vulnerable segments of society.
Stricter control over cashflows
The pandemic has pushed several households into financial dire straits as a result of furloughs, salary cuts, and job losses. In spite of the boost to online retail, the overall level of consumer spending is significantly lower as compared to previous years.
As people reduce their spending and assume tighter control over outgoing payments, businesses can expect to see a marked reduction in standing payment instructions, direct debit, and recurring card payments.
This reduction in consumer spending coupled with the increasing volatility of scheduled payments will mean that businesses have to find new ways of sustaining their cashflows during the crisis. For example, we offers both – a faster payment processing system, as well as funding via cash advance, which could be invaluable in helping businesses remain afloat during these challenging times.
The rise of cryptocurrencies and ledger technology
The sad reality is that any crisis presents an opportunity for criminals to take advantage of the vulnerable. As online payments become more mainstream, businesses will need to make significant improvements in fraud detection and prevention technology in order to keep customers secure.
Many merchants currently use artificial intelligence and analytics to identify fraud. However, the need for enhanced security for online payment gateways could also lead to more widespread adoption of blockchain-based ledger technologies for processing payments.
Another potential side effect could be an increased usage of cryptocurrencies like Bitcoin as a payment method, since they are immune to fraud and manipulation. This would mean that businesses need to adopt payment processing systems that accept these digital currencies.
With several countries and financial institutions in a race to develop their sovereign cryptocurrencies, the pandemic could be just the catalyst towards driving these innovations to the forefront of the payments sector.
The overall impact of COVID-19 on the global economy still remains to be seen. However, it is certain that the payments sector will have a key role to play in redefining business models during and after the pandemic. The concept of “cash is king” is definitely going to be challenged as consumers and businesses alike move towards new payment methods.
Overall, businesses will need to look towards developing partnerships with key collaborators that can help them to meet the evolving needs of customers and develop contingency plans to help them survive similar shocks in the future.