The global pandemic has done more than just change consumer behavior; it has accelerated the demand for flexibility, choice, and convenience. Habits are forming and the industry must decide which temporary changes become the norm for doing business beyond COVID-19.
E-commerce spending is up 30%, with some businesses adapting more successfully than others. While Puma made the decision prior to the coronavirus outbreak to invest in its online business and saw e-commerce grow by 77% in April, Burlington Stores grappled with their early 2020 decision to cut e-commerce altogether. A strong digital presence—formerly a competitive advantage—has become table stakes for retailers.
And the payments industry must keep up. As merchants are challenged to adapt their business just to survive, and consumers push for greater control over where and how they spend, the payments industry is in a position to align the various needs.
The pandemic has forced change in the way merchants, consumers, and payment processing companies interact, but COVID-19 is just one of the forces propelling continued advancement. There is no turning back, no matter how fast or slowly the world recovers.
Here are three developments within the payments industry that will continue beyond the lifespan of the pandemic:
Contactless payment adoption will increase. The pandemic has proven that cash is not king—at least not in its physical form. Point-of-sale contactless payments have become a business imperative as consumers continue to seek out safe shopping options. Walmart has streamlined the checkout process for Walmart Pay, while grocery chain Publix introduced Apple Pay and Google Pay in their stores in April, joining many other supermarkets and drug stores.
The global contactless payments terminal market was valued at $13.23 billion in 2019, and it’s growing. In the U.S., where the adoption of digital wallets has lagged well behind Asia and Europe, there is projected to be an 800% increase in people using at least one provider between 2020 and 2024.
Even as people begin to venture out of their homes more frequently, faster transactions, shorter lines at checkout, and convenience from simply scanning a phone will continue to entice consumers to try a payment solution like Apple Pay. The market is rapidly expanding for digital wallet providers with boundless opportunities for pushing further technological advances in the sector.
Contactless isn’t limited to in-store, either. Although smart speaker purchasing has not taken off as quickly as industry-insiders predicted, more than 10% of digital buyers in the U.S. have made a purchase through Alexa, Siri, or another favorite AI device. It’s now up to the payment companies to prove this option is not only convenient, but equally secure.
Demand for variety in installment payments will increase. Consumer demand for flexibility is nothing new. However, the sudden uncertainty people feel amid widespread layoffs, coupled with work and lifestyle behavior transformations is accelerating the call for more payment options.
Buy-now-pay-later is frequently used to describe any installment plan, but even within this space there are multiple options available to consumers. Companies like Affirm and Afterpay offer new zero-interest credit at the point-of-sale, while a solution like Splitit works within a customer’s existing credit line to offer interest-free alternatives. With consumer preferences spread across providers, offering multiple installment payment options will become as commonplace as merchants accepting both Visa and Mastercard.
Experian reports that more than one-quarter of people have reached out to their credit card company to make a special payment arrangement since the beginning of the pandemic. Meanwhile, as one could expect, lenders are making it more difficult to qualify for new credit. By offering various installment options, merchants have a helpful option to offer their customers who may not qualify for a new line of credit at the point of sale as well as those who wish to avoid new credit in the first place.
Traditional payment processors and fintech will grow their partnerships. Fintech has become widely accepted as the banking industry’s ticket to innovation. According to Cornerstone Advisors, 65% of banks and 75% of credit unions identify fintech partnerships as a key priority for 2020.
It isn’t just banks turning to fintech for their agile responsiveness, though. In light of the pandemic, Visa has pushed its fintech startup accelerator partnership program, Fast Track, into overdrive. The credit giant is actively expanding the global reach for partners that manage contactless delivery payments, expedite business-to-business transactions, process loans, and more.
These kinds of partnerships represent symbiotic relationships that address consumer needs. When Mastercard and Apple Pay teamed up last year, consumers were promised increased flexibility and innovation thanks to Apple Pay coupled with a sense of security due to Mastercard’s long-standing reputation.
There is no one-size-fits-all approach for payment preferences, so diversity and partnerships are key.
Moving forward, we will see a convergence of credit, including POS credit options like Synchrony powering cards for brands like Gap and Bloomingdale’s. This move protects retailers from unpaid debt—an increasing concern for all merchants today—while retaining the opportunity to track customer behavior and drive loyalty.
Standard credit card providers and buy-now-pay-later solutions will increasingly partner as well, to get more responsible credit into the hands of more people. As millennials, in particular, shy away from taking on additional debt, credit companies can turn toward partners in the installment payment industry to deepen relationships with their existing customers.
Personal finance and budgeting is another opportunity for fintech partnerships with credit cards and merchants alike. For better or worse, consumers will emerge from COVID-19 more discernable. An unstable economic climate increases the demand for budgeting tools like Mint or Tiller Money. And that’s not a bad thing. Payment companies need to embrace the tools that help people spend responsibility if they want to keep customers for the long-term.
