The covid19 pandemic has yet to abate, even though forecasts were optimistic that after a year or so, it would be a thing of the past. Now nearly two years later, and with new waves of new variants still hitting countries all around the world, we are seeing a resurgence of consumer spending, in-store commerce, and a return to entertainment and sports venues together with recurring lockdowns aimed at preventing mass infections.
Change is here to stay
The situation has driven a change in consumer habits and has accelerated the adoption of new payment technologies. It could be said that the past two years have been marked by the challenges of digital transformation. With the shift to “living with the virus”, 2022 looks like it might become a stabilizing period insofar as the “new normal” for business activities.
Research by Fiserv found that nearly 24% of respondents believed mobile payments were the safest way to prevent the spread of the virus, so it’s not surprising that according to Insider Intelligence, the coronavirus pandemic accelerated payments industry digitization by two to three years!
Going Cashless
Any way you look at it, cash is losing popularity and as such, is being used less and less. Research shows that by 2026 the UK will be nearly cashless while Nordic countries are hoping to attain that goal by 2023.
Contactless payments are transactions made via RFID (Radio-Frequency Identification) or NFC (Near Field Communication) technologies. The consumer taps either a contactless chip card or payment-enabled mobile device onto a contactless-enabled POS terminal to pay and complete a transaction.
Digital payments have already passed the $131.36 billion, per Insider Intelligence and are quickly becoming the preferred means of transacting for consumers. According to Juniper Research, half of the world’s population will use mobile wallets by 2024 and The Futurist Group, claims that some 38% of consumers now perceive contactless as a basic payments feature.
More and more consumers are looking for a frictionless payment experience. this includes streamlining the checkout process and cutting down unweighting time and the number of steps needed to conduct a purchase.
This has given a rise to one-click payments, auto-renew subscriptions, contactless card payments, digital wallets, etc.
Google Pay and Apple Pay
For people under 30 in North America, Europe and Asia, mobile payments are simply the de facto method used to purchase and pay for everyday items. The reason for this is easy to understand – it’s so much simpler and easy to use!
Since so much of online shopping is conducted on the telephone it’s no surprise that the two major operating systems of cellular phones and the world’s largest manufacturer of cellphones have incorporated seamless means of payment into their products. While a number of companies have tried to break into the market, the three major players remain Apple, Google and Samsung.
According to the study done by Pulse Network ,Google Pay makes up 3% of mobile wallet transactions in the US, while Samsung Pay makes up 5%. Apple Pay has the lion’s share with 92%. The trend is similar in Europe as well which is not surprising due to Apple limiting iPhone’s NFC chip to work only with Apple Pay.
Cards and digital wallets are still the most used online payment methods in Europe. Despite the growth of various payment methods, consumers in many markets in Europe still tend to choose traditional credit and debit cards as the first choice. In Germany, Italy, and Poland however, E-Wallets have already outpaced cards.
The numbers continue to grow, and more and more people are leaving their plastic behind and using their smartphone to make purchases. After all, why carry around unnecessary items like a credit card when you can pay just as easily with the phone that you have in hand!
Single-Click Payments
Another way of paying that is gaining traction is called single click payments which enable you to purchase items with a single click. The relevant payment data is filled in automatically.
An encrypted payment system encrypts the customer’s card data using a process called tokenization which replaces confidential bank card data with a unique token that allows you to pay for purchases online without entering your card details again and again. The token becomes the customer’s identification for future purchases, after the initial time payment and customers can make one-click payments in the future at that website or from that retailer.
Pay Later Gets Popular
With the growth of online shopping and the advent of new digitally savvy generations joining the ranks of shoppers, a new trend is emerging especially among younger generations – BNPL – which stands for Buy Now Pay Later.
Thanks to BNPL leaders such as Klarna, Affirm, Uplift and Splitit, Credit cards are getting less popular with Millennials and Gen Z customers. According to Forrester, nearly 36% of US online adults are interested in, currently use, or have used a “buy now, pay later” service for a large purchase.
In Jan 2020, 26% of the 100 U.S. retailers offered a deferred payment method and by December, that number had increased to 46%. Kaleido intelligence claims the European BNPL market is set to grow to €300bn by 2025, or around 30% of the total eCommerce spent that year.
The popularity of deferred payment has caused the traditional payment leaders Visa, Mastercard and PayPal to also offer BNPL services to meet this evolving consumer trend. According to Mckinsey, BNPL’s impact on incremental sales varies significantly across verticals. We see the highest incremental conversion rates in certain discretionary categories—apparel, laptops, and beauty products, for instance—where up to 20 percent of respondents say purchases would not have occurred without BNPL.
Blockchain is here to stay
While Blockchain technology has been slowly working its way into financial institutions, crypto based methods of payment are rising steadily.
In the past, crypto currencies we’re a novelty but they have become a viable payment method. The advantages of crypto over traditional payment methods is that they are a push method which means that they cannot be retracted or subject to chargeback issues.
Although most blockchain-related payments take longer to complete, cryptocurrency is on its way to becoming a player in the eCommerce sphere since it is secure and faster than typical cross-border transactions.
Cross-Border Transactions
Visa, Mastercard, and others such as MoneyGram are all coming out with services to facilitate cross-border payments better.
According to a McKinsey report, cross-border payment flows totaled $130 trillion in 2019, generating payments revenue of nearly $224 million.
By nature, cross-border transactions have been slow, expensive, and time-consuming prompting inventors and businesses to find alternative methods for streamlining international payments. The old correspondent banking model that has been in place for over 30 years has a cumbersome multistep process with corresponding banks in different countries.
In a globalized economy, with people from different countries ordering goods from other countries the need for faster, cheaper, and more efficient cross-border transactions has become a necessity, and this is driving changes in the industry.
The future is already here
As we can see, the payments industry is going through some major changes both behind the scenes and for users. So, while COVID19 is responsible for chaos around the world, it is also responsible for accelerating the adoption of contactless technologies that are bringing further ease and convenience to consumers.
As applications and circumstances continue to change, we will find that contactless is going to continue to touch our lives more and more in the future.