Pivoting Your Payments Business to Support Your Community
The start of every year is full of hope and positivity for everyone, whether we are talking about hope for prosperity in our businesses or hope for improving the quality of our lives. 2020 was no different to this, except that this year came with a twist that has forced the world in a direction that is not necessarily comfortable for all of us. While trying to take care of ourselves and the most vulnerable among us, everyone is hoping for an effective vaccine to be mass-produced soon, so that our lives can go back to the ‘normal’ that we were used to.
Millions of people have been impacted by the domino effect caused by the fallout from the COVID-19 pandemic. Therefore, it is crucial we consider both the way we manage the ongoing health crisis and getting economies up and running again. This will help mitigate the long-term impact of the pandemic on people’s lives.
In the beginning … or how our lives have been disrupted
If we were to go back to one year ago, our vision for today (October 2020) would have been very different. We would have imagined that we would do only part of our shopping online, allow our children to watch cartoons on a mobile device occasionally, go to restaurants on Friday evenings, visit our relatives, be OK with holding cash, and celebrate our work anniversary with our colleagues in the office. The reality is that we are compelled to do most of our shopping online, our children learn through online courses, we order food rather than going out for dinner, talk to our parents on WhatsApp, hold or touch cash only rarely and forced by the circumstances, and meet our colleagues online for virtual coffees. Thank God the coffee on our desks in our home office is real.
In the pursuit of safety, we avoid contact with other people as much as possible. The way things evolved in recent months have forced us to spend most of our time indoors and online. There has been a mass shift towards working remotely and the unemployment rate is reaching higher levels every month. As a result, we have started to look more and more for products and services that offer value, access, convenience, and predictability. These include basic food and hygiene products, clothes and gym gear, or house remodeling articles that can be delivered at home. Consumers have started to avoid face-to-face payments and embrace new ecommerce models of paying and receiving goods such as ‘click ‘n’ collect’, subscription boxes, in-app payments, etc. Food consumption has moved from restaurants to home cooking and take-aways (to avoid waiting in line and to save money). Since March 2020, the sales of home entertainment products and streaming services have reached an all-time high.
However, as people were let go from their jobs, many sought easy ways to make money by scamming vulnerable digital users. With so much time on their hands, they are more inclined to enter into long, friendly phone calls or email/chat correspondences. As examples of scamming tactics we can mention: selling products that cure/prevent the Covid-19 virus, refinancing mortgages, selling health insurance, phishing emails from the ‘World Health Organisation’, free Netflix, threats for breaking quarantine, and more.
Then … or how money has been disrupted
The threat of infection through physical contact has made the payments industry shift gears towards cashless and frictionless payments, causing usage of cash to decline. As a result, in the last months, contactless payments have dramatically increased, with consumers shifting from ‘traditional’ payment methods, such as cash or chip and/or PIN bank cards, towards contactless methods via contactless cards or apps. At local stores, cashiers have been trained not to handle cards directly but to encourage instead the customers to insert the cards into readers themselves.
To avoid contact with payment terminals, banks in several European countries have raised the spending limit.
On the flip side, while giving up on cash seems the obvious thing to do, the current crisis is highlighting that not everyone has the same level of access to the necessary new technologies and digital tools to transact. Unbanked citizens, elderly, migrant and gig workers, local merchants, and others still depend on the use of cash and therefore, before removing cash completely, the payments industry needs to plan this thoroughly.
Meanwhile … the impact on brands, companies, SMEs
Strict lockdowns imposed by governments across the globe in the first half of 2020 have forced many local businesses such as restaurants, bars, gyms, and salons to shut down their activity. In many situations, as companies could no longer engage with customers in person, they had to go online. For many it has been the first time they launched a digital distribution channel. Another challenge for small merchants has been customer retention: how to get new ones and how to retain the loyal ones. With limited resources to bring new customers through their doors, businesses had to be creative and reinvent ways to sell things from a distance, with minimal physical touchpoints.
Still, other companies have seen customer demand plummet. According to FT, the top 4 winning industries in terms of profit and keeping the business up and running since March 2020 have been pharma, cloud computing, ecommerce, and gaming.
At the moment … payments companies giving a helping hand
In this context, an important role is being played by the payments companies. They can drive forward the payment digitalisation and serve the people and businesses that are most affected by the pandemic while enabling their access to government loans and support. They are helping customers to maintain essential liquidity through this low period and in turn accelerate the restart of their activity. Companies that ensured recovery in the most affected areas are as follows:
- Companies offering subscriptions
Offering convenience and predictability in a very uncertain time, consumer subscriptions have become very popular across a variety of sectors. More than 22% of companies have seen subscriber acquisition rates grow during the pandemic, with food and beverage subscription boxes in high demand.
- Companies offering local payment methods/alternative payment methods
Coronavirus has accelerated the need for providing safe and convenient payment methods for consumers. As shops and beauty salons reopen and consumers return to restaurants and doctors’ offices, businesses must be prepared to accept payments in a variety of ways to meet consumer demand. There are technology providers such as Macropay that equip businesses to accept local payment methods, digital wallet payments, mobile payments, card payments, etc. For example, many consumers rely on cash-based payments, even when shopping online. However, merchants can support them in the process of paying, by providing a barcode for their order. With this barcode (either printed or on their mobile device) they go to a local convenience store or bank and pay in cash. At that point, the goods are shipped.
- Companies helping with spreading loans/stimulus packages
To provide some relief to vulnerable businesses, many governments across the world have offered stimulus packages/loans. In April 2020, PayPal, Intuit, and Square expressed their interest to be able to participate in the US government’s emergency lending program for small businesses and had been approved to participate in the US Small Business Administration’s (SBA) Paycheck Protection Program (PPP). The PPP provides aid in the form of forgivable loans for SMEs that keep all employees on their payroll for at least eight weeks.
As such, PayPal facilitated the transfer of more than USD 1 billion in federal loans. Moreover, its money transfer app Venmo, which was popular before the coronavirus pandemic, has started to be used not only when friends settle dinner bills, but also for socially-distanced withdrawals from the Bank of Mum and Dad.
- Companies processing high volumes of transactions
Traditional banking institutions in Europe have struggled to cope with the increase in transaction volumes coming out from electronic payments starting March 2020, as legacy solutions failed to deal with the load created by the consumers moving into the digital space. Apart from this, there has been more pressure on systems to detect fraud, because the digital channels that intermediate payments were not initially built to handle a huge spike in volumes.
But innovative payments processing companies have proven to be more effective. A surge in online shopping has boosted transactions volume at Adyen, which processes payments for companies such as Microsoft and eBay. Now the company achieved a market capitalisation of USD 19 billion.
- Companies helping companies innovate/digitalise their operations
The crisis has revealed an impetuous need for businesses to digitise their operations to continue selling, keep customers happy/loyal, and reach out to them on different channels. Payments technology partners can help them deploy omnichannel capabilities and therefore bridge payments in any environment, physical or digital. Other examples could refer to adopting marketing technology. This tech collects transaction data and customer identity to assist businesses with improving targeted marketing and drive more sales. An integrated payment and loyalty solution enables SMEs to connect with their most loyal fans, to send out personalised messages with updates about the business operations and new ways to shop while minimising contact.
McKinsey experts predict that there will be no return to the norms of 2019, as the impact on the behaviour and expectations of customers and businesses will be profound. Therefore, we will conclude with their advice that ‘it is critical not only for the payments ecosystem but also for the economy as a whole to develop, today, the payments solutions that will allow economies to emerge from the current crisis efficiently and define the post-COVID-19 future’.