Amongst all challenges – health-wise, societal and economical, the payments industry looks like one of the few sectors in high demand in the current COVID-19 pandemic. As of last week, 29 European countries have increased their contactless limits, demand for mobile payment services has doubled in some cases and there is a controversial discussion about the perspectives of cash in an industry vowing for cashless. Yet are things so simple?
A preference for contactless and mobile payments in shops, and the uptake of e-commerce during the lock-down probably constitute a 2-3 year leap in shopping and payment behavior. But it is a bigger piece of a smaller cake. Danske Bank, founder of the country’s leading mobile payment system, has published some of the more detailed data on how these shifts have been playing out (only) within the first week of lock-down in Denmark (announced on March 11, data up to March 17): Whereas grocery spending and health spending went up (20-90% over the same period in the previous year), other areas went down significantly between clothing (-40%), transportation (-60%) or cinemas (-90%).
Two other factors are key driving forces affecting the payments industry in its entirety: Global travel capacity is down by 80%, and cross-border transaction flows are heavily impacted.
Different to previous crises, the COVID-19 pandemic affects all players. Consumer banks see their card revenues affected considerably, business banks and merchant services suffer with their customers in retail, hospitality and independent professions, transaction banking from reduced international payment and trade flows, and card schemes or alternative payment methods see reduced international shopping and payment volumes. Processors in the payments industry are probably least affected, and positive “islands” remain limited to e-commerce payment service providers seeing rapid uptake of new merchants or mobile payment methods that solve for cashless payment options also in person-to-merchant situations without major hazzle. But even there the picture is mixed, as the Chinese mobile payment giants witness.
We see six imperatives for the payments industry in the current situation, both specific to this pandemic and resulting from the economic effects on consumers and businesses:
Mischa Koller has also contributed to this article.