Digital Payments: A Creature Comfort in the Era of COVID-19
Humans have an impressive ability to adapt – and have quickly done so in terms of their spending behaviors and choice of payment methods in response to the COVID-19 pandemic. Lockdowns forced many to consider cash alternatives to make payments, driving a huge surge in demand for digital payment services. And in some European countries, demand has risen as much as 81 percent.
Contactless payments are being encouraged, with increased spending limits across Europe, leading to an increase in the proportion of contactless payments, for example in the Netherlands where contactless point of sale transactions are now 75 percent of total volume. Similarly, more than half of all card payments in Germany are contactless as compared to 35 percent before the pandemic. In France, bus drivers, who were worried about handling money, have seen authorities introduce an option for text message payments.
In most countries, ATM transactions have also decreased significantly. In the U.K., ATM transactions have seen a more than 60 percent decrease. In Germany, where consumers traditionally favor cash, ATM use is down by 47 percent. Unsurprisingly, this has led to an increase in overall card volumes in some European countries, as consumers who had never dreamed of ordering online have now done so through necessity.
The numbers are clear: the pandemic is driving digitalization in payments. The big question is, will this behavioral change outlast COVID-19?
My opinion is that it will. Once consumers overcome the fear of new technology and security (mostly an imagined risk), they experience the ease, traceability and manageability of digital payments. And we humans are creatures of comfort, so in the end, that wins.
What does that mean for the payments industry going forward, as we slowly and carefully come out of lockdown? In the past, certain industries have been forgiven for a sub-standard online experience, but a reduced reliance on face-to-face or touch transactions will force all organizations to innovate and optimize the digital experiences they offer to consumers.
The expectation could be that even if there is a significant impact to the economy due to COVID-19, electronic transactions will still rise because of a lasting change in consumer behavior. The payment industry’s stability, coupled with creative innovation, will play a valuable role in supporting the reboot of the global economy when the crisis is over. As consumers adjust their behavior and deepen their trust in new payment types and channels, there may well be a long-term shift in how we consume and transact.
Companies that are agile in their response and accelerate a full transition to more digital-based payments will benefit in the long term. An interesting role could be the rise of instant payments and the potential overlay services that are possible on the back of that infrastructure globally, allowing value-added services to be delivered to consumers, merchants and corporates alike.
Around the world, the industry is creating new and innovative digital overlay services underpinned by real-time payments. As an example of one such digital overlay service, my local ice cream store has now begun using request to pay. The owners were forced to close at the beginning of the lockdown. Now that the situation is stabilizing, the ice cream shop is reopening, but it cannot afford busy lines on hot days. So, you must order your ice cream in advance. They will send you a request to pay and once payment has been received, you can go and collect your tub of Italian ice cream.
Of note, while they’re the first merchant that I know that is operating in-store, based on request to pay, they were the last merchant in my village to adapt to point of sale. How times change!
Often, out of adversity comes positive change and it’s going to be interesting to see in which ways payments will change for the better as we look back on this period.
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