The COVID-19 Pandemic has caused a global economic slowdown which will have critical ramifications for consumers and businesses alike in 2020 and beyond. But it is also driving increased e-commerce sales and a broader shift to digital payments which may irrevocably change the way people shop and pay for goods and services long after the virus has subsided.
Management consulting firm McKinsey & Company noted in March that payment systems have so far proved resilient and reliable, with associated providers continuing to enjoy high levels of trust from the general public. However, with the quarterly gross domestic product (GDP) predicted to decline by as much as 35-40, the payment industry’s financial outlook reflects considerable uncertainty in the short term. Indeed, McKinsey now expects an associated 8-10% drop in its total revenue for 2020 (or a reduction of US$165bn-US$210bn). That’s a far cry from the six percent growth predicted in the company’s 2019 Global Payments Report and on a par with the global financial crisis of 2008.
Of all the industry sectors being tracked by McKinsey, payments for non-travel related e-commerce is the least impacted – at least when compared to the severe disruption expected within sectors such as automotive, electronics, consumer durables, hospitality and tourism, luxury retail, airlines, events, hotels, restaurants and catering. Spending on remote ordering and low-value contact payments, however, is expected to see triple-digit growth.
And while it notes that some e-tailers shipping physical goods are struggling to cope with demand due to supply chain logistics, Global Data too highlights a recent boost in e-commerce sales. Food, drink and medicine are in most demand, but the data analytics and consulting firm have also seen entertainment purchases expand. That includes subscriptions to over the top (OTT) streaming video services and one-off transactions for individual titles or temporary passes for example, as well as video game purchases and in-game downloads.
Surge in entertainment app downloads and payments
Mobile data and analytics platform App Annie has recorded an associated surge in app downloads as people around the world stay at home, with the COVID-19 lockdown making consumers spend more time on their smartphones, particularly in India and Brazil. The company’s latest Q1 Global Market Index found that users spent a record US$23.4bn on mobile apps in the first quarter of 2020. New app downloads exceeded 31bn during the three months ending March 31st by which time the coronavirus had taken hold in most regions of the world, up 15% on the previous quarter.
Two over the top video streaming apps – Netflix and Disney+ – made the top ten apps App Annie ordered by consumer spend at 3rd and 7th respectively, with Netflix also ranking 9th for total downloads. Mobile gaming apps have also experienced a significant rise in demand, particularly those with a social element – massively multiplayer online role-playing games (MMPORGs) like Guild Wars 2 and Dungeon Fighter Online for example. That demand is more pronounced in countries which have implemented strict social distancing measures such as India, Malaysia and Thailand in Asia, and Italy, Spain, Belgium and France in Europe.
The week beginning March 22nd saw the largest volume of all mobile game app installs – up 25% year on year to 1.2bn – since records began. App Annie noted significant spikes in usage in February in places like China and Italy where the coronavirus first took hold, while France and UK saw similar surges upon the enforcement of government lockdowns in mid-March.
The whole of March saw a 25% YoY increase in-game downloads via Google Play, amounting to nearly 10bn downloads (iOS game downloads expanded 25% YoY to over 3bn). Consumers are thought to have spent a total over US$16.7bn on mobile games during the quarter, led by the US, China, Japan and South Korea. Some third-party digital payment and fraud prevention providers have also noted an uptick in digital payments for streaming video and gaming content starting in the second week of March.
Real-time payments and digital money transfers
The COVID-19 crisis may also push more consumers and businesses to adopt digital money transfers instead of cash payments. Research compiled by Global Data and ACI Worldwide published earlier this month forecast that real-time account to account payments was already set to grow at an annual compound growth rate (CAGR) of 23% between 2019 and 2024 to reach over half a trillion transactions. India is expected to lead that growth, expanding from 15.3bn transactions in 2019 to 52.8bn by 2024, with similar rates of expansion predicted for Malaysia, Finland and Belgium. The US is expected to see transaction volumes swell from 734m in 2019 to 4.2bn by 2024.
That rate of expansion may accelerate sooner if demand for real-time payments surges in the current quarter as the COVID-19 Pandemic puts pressure on both consumers and businesses struggling to generate income in lockdown scenarios. Payment service providers already report a sudden increase in money transfers across the globe as relatives to send money to those in need and neighbours pay each other back for groceries orders and delivery.
Banks are also encouraging consumers to use their online and mobile banking features while businesses are moving to protect their partners by speeding up digital payment processes. In the UK, for example, supermarket chain Morrisons committed to 48-hour faster payments to help smaller local food suppliers and farmers impacted by the outbreak.
Pandemic accelerates shift away from cash
Those trends may also bring about a more immediate decline in the use of cash. Contactless payment volumes are on the up due to perceptions around hygienic security which are driving consumers to avoid both paper notes and point of sale (POS) terminals to minimise any exposure to potential sources of contamination.
Reduced ATM usage in European countries appears to confirm the trend while Global Data predicts an acceleration towards a cashless economy. The firm also notes that banks, merchants and payment industry players will facilitate that shift by increasing acceptance of contactless and raising contactless payment limits, while noting the opportunity for growth among mobile wallets secured by biometric authentication technologies and processes.
In the UK the maximum contactless transaction value was an increase from £30 to £45, with Ireland, Estonia and Poland raising the threshold from EUR30 to EUR50. Other European markets have implemented temporary raises which are likely to drive increased use of contactless cards in retail, a trend which is likely to stick once the Pandemic subsides.
New patterns of consumer behaviour and changes to existing commercial business models established now are likely to bring about more radical changes in the future or at least hasten their arrival. McKinsey predicts that smaller retailers forced to close during the crisis will not reopen physically but will seek a digital future; instead, as increased use of contactless payments becomes further ingrained in customer habits. Providers may expand their digital wallet solutions beyond smartphones and wearable devices, strengthening authentication with digital IDs and introducing deeper monitoring and reporting guard against online transaction fraud. They may also combine those features with locational information to help consumers avoid congestion during shopping trips or pickup times.
Whatever the current crisis brings the world in the short term, it is unlikely that commerce will ever go back to being the same as it was before. We anticipate that some of these shifts will be long-lasting.