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Fintech & Finserv CX

Dirty Money & The Reshaping of Payments

The Impact of COVID-19 on Cash and an Inflection Point for Digital Payments

COVID-19 has disrupted purchasing habits around the globe, indefinitely changing the way that merchants accept payments and consumers make them. While this temporary shift is forcing people to explore new services, apps and software, from grocery delivery to mobile banking, new adoption also has the potential to accelerate the long-term demand for digital payments. 

Let’s take a look at how the coronavirus outbreak is impacting the digital payments ecosystem and what payments providers need to consider when imagining a post-COVID-19 future.

Merchants opt for no-contact payments over “unclean” cash

It’s no secret that cash carries bacteria, and researchers believe it has the potential to carry viruses too. A recent study suggests that the novel coronavirus may be detectable on certain surfaces for anywhere from a few hours to three days. 

While the presence of the virus on a surface doesn’t mean that contact with it would be enough to infect someone, organizations aren’t taking any chances. Forbes reports that, for banknotes coming from Asia and Europe, the U.S. Federal Reserve has increased the minimum holding period from 5 to 10 days, while Chinese banks are disinfecting and isolating used bills. Meanwhile, grocery chains, pharmacies and other essential services have adopted cash-free policies to limit employee and customer exposure to the virus.

In the midst of fears over dirty money, contactless payments are an appealing option for consumers doing essential in-store shopping. Canadian debit-payments firm, Interac said contactless spending hit a high in mid-March when consumers rushed to gather supplies. The number of e-transfers also increased, reaching 51.9 million in March.

More customers may also begin opting for mobile payments as a secure, contactless option, though North American markets have been comparatively slow to buy in. As CNBC reports, before the outbreak, major mobile payments apps, including Apple Pay, Google Pay, Venmo and Square Cash, had an adoption rate of under 10% in the U.S. – a number well below global rates. While the coronavirus impact is still unknown, experts predict that the outbreak is an “inflection point” that could kickstart the uptake of mobile wallets. At the same time, the crisis could hurt other more lucrative parts of payments providers’ business, as traditional point-of-sale payments volumes are predicted to drop by 30 to 40 percent.

More consumers experience the appeal of e-commerce 

Thanks to housebound shoppers around the world practicing physical distancing and self-isolation, the demand for online payments services has skyrocketed. One of the first countries to order stay-at-home measures, Italy saw e-commerce transactions increase 82% in early March, according to Nielsen. Several other countries have also observed significant jumps in online retail sales in response to COVID-19, including France (87%), Spain (62%) and Australia (45%). 

Increases in retail e-payments have, of course, been driven by the need to curb the spread of coronavirus. But in the process of online pantry stocking, many consumers have also discovered an easy shopping solution with competitive pricing and convenient delivery or pickup options that could lead them to change their shopping habits permanently. As retailers and brands navigate the world of coronavirus and beyond, having an effective e-commerce strategy in place is becoming increasingly critical. The global crisis will likely speed the transition to online payment options as more merchants reconsider their traditional dependency on in-store purchases.

 

Providers will see an overall reduction in digital payments this year

Despite the fact that more consumers are choosing digital payments for certain purchases, “overall revenue in the e-payments market is likely to decline this year,” reports the Wall Street Journal. Increased online retail traffic is offset by major decreases in digital payments in other areas, including for providers serving merchants in tourism and hospitality, which typically have a higher average transaction value. 

Major providers, including Visa, MasterCard, American Express and PayPal have all warned of slowing revenue growth due to coronavirus. In March, Visa reported that payment volume was down 4 percent from 2019. Banks have also taken a hit, with shares plunging in recent weeks.

In a recent report on the impact of the coronavirus crisis on payments economics, McKinsey predicts that revenue growth in global payments will drop by $165 to $210 billion – an amount comparable to the revenue reduction in the wake of the global financial crisis of 2008-09.

Payments providers and the road to economic recovery

Banks and payments providers are helping their customers pivot to simple, low-cost e-commerce platforms to keep business going during the switch to an online sales environment. They’re also helping governments mass distribute financial aid to citizens and businesses. And they’re supporting companies as they make plans to weather the crisis by providing payments data that gives them a live, detailed picture of the funding needed to stay afloat. As the pandemic wears on, the payments ecosystem will need to innovate new solutions to meet the challenges of the current crisis, while defining an economically viable post-COVID-19 future. 

 


CX Digital Fintech & Finserv

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