How COVID-19 is changing payments

As the country attempts to emerge from lockdown without causing a second peak of infections, what are the changes within the payments industry which have taken place so far and what is the likely impact?

The virus has accelerated many existing trends, such as working from home, which will be life-changing for many people.

Similarly there has been an acceleration in changes in payments – contactless being the most obvious example. It is estimated that two-thirds of transactions globally are now contactless, around three times more than a year ago. Within these contactless transactions, some banks are reporting mobile wallet transactions up 17% compared to a year ago – around double the growth rate predicted for 2020.

Even cash-heavy economies such as Germany and Italy have seen a surge in (contactless) card-based and mobile payments, helped by the increase in the contactless payment limit in most European countries from €25 to €50 (UK £30 to £45).

One of the most significant ways the payments industry has been affected by the coronavirus crisis is in its economic impact. A reduction in consumer spending, declining international trade and a global economy on the verge of recession will inevitably lower the volume of payment transactions.

Besides the actual level of spending and the way consumers shop, what people are spending on has also changed significantly. Spending on holidays and associated industries such as airlines has inevitably declined dramatically, whilst pharmaceutical and fitness products, DIY supplies and online media have all seen a growth in volume.

Merchants have been actively encouraging customers to pay by card, ideally contactless, instead of using cash – merchants accepting only cash have found themselves at a significant disadvantage.

Unfortunately there have also been more negative impacts. As digital transactions have increased, fraudsters have seen more opportunities, and fraud has migrated into the mobile channel. According to ACI Worldwide mobile fraud attempts were up by 13% between March and April this year.

The accelerated move towards contactless and away from cash has highlighted the dependence on cash of a small section of society, particularly amongst the vulnerable and elderly, for whom it remains the key way of managing their finances and who struggle with the use of digital payments. How these people are protected and helped moving forward needs to be addressed and taken into account.

Whilst we can look at the developing trends and surmise how things will evolve moving forward, it is evident that an ability to adapt is key to survival for businesses, especially with circumstances dependent on the instability of the virus and our attempts to manage it. COVID-19 has caused changes to accelerate in payments such that we are already in a different landscape; companies in the payments industry need to make sure that they can adapt to it.