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How the COVID-19 Pandemic is Changing Mobile and Digital Payments in the UK

July 20, 2020

The fintech industry in the UK has been growing for some time now. But with the coronavirus pandemic spreading globally in the first quarter of 2020, we needed to speed up some processes to respond to the quickly changing reality. 

In this article, we’re looking at the dynamics of these changes and predictions on what’s in store for mobile payments and payment gateways.

We’ll take a closer look at:

  • The mobile and digital payment landscape before the pandemic
  • The challenges behind the COVID-19 shift to contactless and mobile payments
  • Digital payment trends expected to grow post-COVID

The mobile and digital payment landscape before the pandemic

The rise in the use of digital and mobile wallets has long been predicted as a 2020 trend globally. With a 42% share in 2019 spending, they were already the leading payment methods in e-commerce and growing at the point of sale (according to Worldpay’s Global Payments Report).

But even though the UK is a leader in European e-commerce, it has been slower to adopt mobile payments than some emerging markets. This is mostly because debit and credit cards (especially contactless) penetrated the market long before smartphones did, making it harder to adopt mobile payments.

In 2019, digital and mobile wallets accounted for 29% of ecommerce payments in the UK, but only for 4% at the point of sale, far behind debit cards and cash. This is while 48% of pay fares and other point-of-sale transactions were made using debit cards

At the same time, m-commerce sales accounted for 31% of all sales in 2019.

In comparison, the global adoption of digital and mobile wallet payments at the point of sale was 21% and expected to grow to 29.6% by 2023.

But these are predictions from before the coronavirus pandemic happened.

The challenges behind the COVID-19 shift to contactless and mobile payments

Then came the COVID-19 pandemic, and things started shifting – and had to change very quickly. With lockdowns, travel restrictions, and hygiene concerns, contactless payments, including mobile payments, became the desired solution. An obvious one for online payment gateways, but also contactless payments at the point of sale.

Consumer spending has generally slowed down, with payment providers launching initiatives to preserve economic liquidity. Both consumers and businesses had to change their buying habits. Banks, on the other hand, had to maintain cash access while alleviating health concerns.

The payment industry has been faced with two major challenges that will shape and accelerate its growth in the coming months.

Payments and public health

The World Health Organisation has advised against using cash. It also recommended contactless payments as the way to go to avoid increasing the chances of contracting the virus. This means many businesses now discourage cash or don’t accept it altogether. 

On the other hand, consumers are spending more time at home and getting used to a more digital life. This has caused the use of mobile wallets to surge worldwide, and much fewer payments are made in person anyway. 

63% of UK consumers surveyed by Paysafe said they would be using contactless payment technology more due to health and safety concerns. 61% said they were happier using contactless payments now than they had been last year.

Digital wallets like Google Pay or Apple Pay are becoming increasingly more popular in the UK. This follows a global tokenised payment trend in NFC-enabled phones. 

Apart from solving the health and safety concerns, they offer a smoother customer experience for all kinds of payments, including peer-to-peer, point-of-sale, and e-commerce payments. And since they limit in-store interactions by removing the need to manually enter the PIN when paying above the contactless limit, they’re becoming an even safer way to pay.

Most also don’t have contactless limits at all, thanks to the two-factor authentication available in fingerprint-enabled digital wallets.

Credibility and trust

The payment industry’s changing, along with consumer habits and tech innovations. But the financial and data-sharing regulations don’t seem to keep up. 

Innovation in digital payments brings enormous benefits to customers and businesses. Since the pandemic is accelerating our use of electronic payments, an even more significant portion of them will be happening outside of the tightly regulated area of financial services.

The recent scandal with the German payment company Wirecard has raised new concerns about the safety of customer funds when it comes to fintechs and payment technology in general. 

The crisis has disrupted services for customers who relied on the tech for payments via third-party apps like Pockit. And were eventually left with no access to their money when the UK’s Financial Conduct Authority froze Wirecard Card Solution operations in the country.

This has shown that we need next-generation payment regulations – as soon as possible – and the FCA is already working to issue new ones. 

This is especially important since usually, times of economic and social crises are favourable for fraud. So we can – and should – expect numerous changes in this area, including more investment in long-term fraud detection. 

Digital payment trends we’re likely to see growing post-COVID

  • According to Accenture’s report on how the COVID-19 pandemic has impacted payments, consumers and businesses are likely to look for payment experiences that offer more control.
  • We’ll also be looking for solutions that preserve liquidity, like emergency access-to-cash solutions and interoperable payment platforms for SMEs.
  • Embedded payment experiences are expected to become more popular, smoothing the checkout experience for customers, who won’t have to leave the app to pay.
  • Payment providers will increasingly need to focus on customers who expect more interoperability between smartphones and payment gateways. This is expected to further replace payment cards by alternative payment solutions.
  • Request-to-pay will enable consumers and businesses to request money from each other on an individual credit basis.
  • Banks will have a greater need for real-time transaction-banking dashboards providing smart insights and solution options to control cash flow and optimise costs.
  • Apps that help with salary and payment flow like Hastee or Wagestream will allow workers to access a portion of their earned pay as soon as they’ve earnt it. A similar process will be happening for gig economy workers and freelancers with platforms like Paid, allowing them to get paid quicker after a job is done.
  • Platforms like Divido will help businesses offer instalment payments to customers – online, in-store and over the phone.
  • Apps bundling financial services in a single digital wallet will become increasingly popular. Examples are already abundant, like Bud or Revolut that’s grown into a personal or business finance hub for their users.

Summing up

The 2008 credit crunch gave life to some of the world’s most famous fintechs. The impending crisis following the start of the COVID-19 pandemic is predicted to be another tipping point for financial technology, both aimed at businesses and consumers.

One thing’s for certain – we’re now taking bigger and faster steps to becoming a cashless society.

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