Experts predict changes in consumer behaviour brought about by the pandemic will stay with us for longer. Some even say we’re never going back to payment acceptance methods from before the pandemic times. And, as we’re expecting 2021 to be another year dominated by the coronavirus and its repercussions, we can only prepare for more rapid changes in both consumer habits and payment technology to accommodate them.
As a result, we can also expect certain types of payment technology to become more advanced and widespread in different regions of the world, as merchants tackle the challenges of scale and going global.
Further rise of e-commerce and m-commerce is inevitable
The statement above is probably not a surprise to anyone, with lockdowns across the globe making it physically impossible to shop like we used to. Over the course of the pandemic, customers have taken to e-commerce shopping at an astounding rate. The U.S. is a great example: from 2009 to 2019, e-commerce increased about 10 points when you look at the share of total retail sales, and 11 points in the first eight weeks of the pandemic, as seen on the chart below.
Which essentially means the first two months of the COVID-19 pandemic exceeded the previous ten years in U.S. e-commerce growth, a massive rise.
This, of course, means businesses needed to prepare to allow digital payments and a wide variety of traditional and alternative payment methods to offer more choice and let people buy and pay the way they like. This often means payment methods that are easiest to access in a given geographical area, but also ones that are perceived as secure or quick.
The number of consumers spending more than half of their monthly spending on ecommerce shopping has doubled during the pandemic. It’s now expected to stay at the same level, with new payment methods like buy now, pay later (more on this later on in the article), mobile wallets, or QR codes emerging and growing in adoption.
The impact of the COVID-19 pandemic on e-commerce growth according to research by Capgemini
Frictionless payment experiences are now a must
Speaking of consumers’ favourite digital payment methods, any consumer will more likely go for a payment that’s easier and quicker to do, given a choice. For merchants, this often means not only improving their user experience, but – most of all – conversions and, subsequently, revenue. So streamlining the checkout process is bound to be a significant trend this year and beyond.
Things like reducing the number of steps to pay, screens to go through, and buttons to click will all help not only improve the customer experience and satisfaction.
An example can be direct carrier billing. When compared to credit cards, it:
- takes fewer clicks – 8 to be exact, compared to 18 for credit cards. You’re typically only entering a phone number and a PIN code, instead of your credit card details, CVC, etc.
- is natively integrated into the app you’re using, meaning a consumer doesn’t have to leave it – and disrupt their experience – to make the payment.
- is instantly authenticated and seamlessly added to the carrier bill. This makes the payment quicker and more convenient. It also makes it easier for merchants to reach the unbanked and underbanked population, who typically don’t carry a credit card.
Direct carrier billing is increasingly used for both online payments, including app stores or streaming service subscriptions, and in the offline world for things like public transport or parking fees.
Other digital payment methods that help streamline the checkout experience are digital wallets and other mobile payments or auto-renew subscriptions. And this year, they’re likely to keep growing in popularity.
Contactless payments are on the rise. And it’s massive
We’re still a long way from a cashless society. Especially in the U.S., where the unbanked and underbanked still make up a large portion of society. The Federal Deposit Insurance Corporation (FDIC) estimates that 25.2% of all the households fall into that category.
But the pandemic has forced more and more businesses to encourage cashless payments or even refuse taking cash altogether. The results of a Gartner survey carried out in May 2020 showed that 46% of U.S. consumers either decreased the frequency of cash payments or stopped paying with cash altogether. 40% said they were more willing to pay in stores that offered contactless payment alternatives.
The effects of the pandemic on contactless payments in the U.S., based on a survey by Gartner
The shift of consumer habits towards contactless payments is evident. Capgemini research suggests that:
- 41% of cash users have tried a contactless card.
- 35% who already owned one, now added it to a mobile wallet.
- And 27% experimented with QR code payments.
Of course, paying contactless is not limited to using touchless credit and debit cards or even mobile wallets. Both consumers and merchants are testing various new solutions, including “in-aisle” checkouts, QR code scan solutions, AI-powered shopping carts, and completely contactless solutions like Amazon Go stores.
Smart checkouts eliminate the need to go through the traditional checkout process in brick-and-mortar stores, thus eliminating the need for human contact.
A smart checkout can range from scan-and-go mobile apps, RFID technology, or more advanced checkouts that use computer vision, A.I. and machine learning combined with sensor fusion.
With these technologies at hand, consumers can scan their products using their mobile phones, pay, and walk out, potentially never having to come in close physical contact with the store staff.
Another payment method providing a contactless payment option are mobile wallets. The Juniper Research report shows that half of the world’s population will use mobile wallets by 2024 – and that’s data from before the pandemic.
QR payments are also on the rise, even in the U.S., where interest in this payment technology, prevalent mostly in the Asia-Pacific region, is also increasing. Popular services like Uber Eats have added QR code payments as an alternative.
Margaret Weichert of Accenture’s North American Payments Practice summarizes it this way: “The longer-term impacts of the use of ‘touchless payment’ solutions may be the biggest impact of COVID-19,” – and it’s hard not to agree.
Biometric authentication is becoming the norm
Once a futuristic fantasy, biometric authentication is now becoming something we take for granted as we’re entering 2021. Research shows there could be as many as 2.5 million biometric payment cards issued in 2021, making it the default payment type further down the line.
Another study shows that biometrically-authenticated mobile payments, both in-store and online, will be worth $2 trillion by 2023. By then, mobile commerce transactions using this type of payment verification are expected to make up a whopping 57% of all biometric transactions, rising from 28% in 2018. No wonder, as today, it’s estimated that 90% of smartphones embrace the biometric payment technology, and this number is only expected to rise.
Even though mobile payments, in general, were slow to catch on in the U.S. despite the rise of smartphones, and notably before the pandemic hit, a recent survey by Statista showed 28% of Americans would like to pay with their phone all the time. As you can see below, though, slightly more respondents still didn’t want to pay with their phones at all.
So we might still have to wait some more for this trend to really take off in the U.S.
Preferences of American consumers when it comes to mobile payments, according to a survey by Statista
POS-lending, a.k.a. buy now, pay later
Another competitive payment trend that’s been disrupting the digital payment landscape over the past months are the “buy now, pay later” type of payments, also known as point-of-sale lending.
Consumers can choose to pay using an instalment plan, either when they buy or even afterwards, depending on the payment service provider. According to Accenture, this type of payment has already gained 15% market penetration in the U.S. and is predicted to grow further in 2021.
According to a report by the Ascent, over a third (37%) of U.S. consumers between 18 and 54 have used a “buy now, pay later” service. The top two reasons were:
- avoiding paying credit card interest,
- making purchases that are outside the regular budget.
The COVID-19 pandemic is clearly fuelling this growth along with purchases made by the younger demographic, who are traditionally not using credit cards and are more likely to avoid credit-card debt.
BNPL payments, as they are abbreviated, have been used both for in-store purchases and online/mobile commerce. Big players like Amazon, Walmart, or Target are already tapping into the trend as well, and more and more payment service providers offer the option, with notable ones like Swedish Klarna or PayPal.
When it comes to what consumers buy now and pay for later, this type of payment plan is mostly used for:
- Electronics: 7%
- Clothing and fashion: 9%
- Furniture or appliances: 8%
- Household essentials: 31%
- Groceries: 5%
- Books, movies, music, games: 15%
- Other: 1%
Voice commerce is gaining traction
2019 was declared the year of voice at CES in Las Vegas (who remembers physical events like this happening offline, in real life?) And voice technology has been developing rapidly, finally letting consumers act on audio ads or go through online checkouts using their voice via a voice assistant like Amazon’s Alexa, Apple’s Siri, and Google’s Assistant.
Only 9.6% of U.S. consumers used them to buy things online in 2019, but COVID again acted as an accelerator, leading to gradually increased adoption of this payment channel.
One prominent example is “Alexa, pay for gas” – using the Alexa phone app or an Alexa-enabled Google device or vehicle to pay for gas at Exxon and Mobil stations across the U.S. The program uses the default payment option in your Amazon account and works with various credit and debit cards.
With the new tech letting advertisers play interactive audio ads on smart speakers that people can actually respond to, including booking a test drive, or putting something into a shopping cart and heading to checkout, we’re looking at an entirely new way to shop and pay for goods, which no longer seems like it’s taken straight out of an episode of the Jetsons.
And as we move into 2021, it’ll be interesting to see how voice payment technology gets spread and used in new ways.
Real-time payments are next
Real-time payments (RTP) are also being increasingly adopted by merchants worldwide. They let merchants, consumers and individuals send and receive digital payments in seconds. With RTP, it’s not about the speed of the payment, but the fact that it happens instantly, here and now, in real time.
RTP is by no means a new concept. The first real-time payment system was launched in South Korea in 2001. But, just like the other trends mentioned in this article, they’re also expected to rise in the U.S. market, from USD 6.8 billion in 2018 to USD 25.9 billion by 2023.
The key drivers are yet again the growing adoption of smartphones and cloud-based solutions, and an expectation for payments to be instant on the part of the consumers. The most significant volume of this type of payments can be seen in the person-to-business payments, but what’s predicted to witness the highest growth rates in the coming years are P2P and B2B payments.
The growth of real-time payments in the US
One of the biggest challenges for both fintechs and incumbents to solve is scaling the concept to international payments, creating a real-time cross-border payments system. And that relates not just to the payment itself, but also to the payment confirmation that needs to happen in real time, too.
The solution to this? Experts think it’s a matter of collaboration in the financial sector – and on a large scale.
According to Deloitte, the Federal Reserve claims it’s amid a modernization transformation intent on creating a real-time ecosystem with the ubiquity, safety, and convenience of legacy payment networks.
Unified commerce is the way to go
This trend is a great way to summarize all of the trends mentioned above, as it embraces a lot of what’s happening now int the digital payments space and e-commerce. And many experts predict 2021 will be all about how payment innovation can help businesses centralize their sales with unified commerce and secure payment data in multichannel mode.
Just like creating a coherent customer journey across marketing channels is essential to sales, so is integrating digital payment methods along the journey. It’s the next logical step for merchants if they want to get more efficient and get ahead, both when it comes to local and global markets.
Unifying payment channels is a challenge, with e-commerce, m-commerce, CRM, POS, inventory management, order fulfilment, recurring payment management, customer service, shipping, etc., having to all seamlessly work together. This often means integrating multiple platforms and systems to sync all the data and processes in real time.
A big part of the market where payments are now being disrupted are small and mid-size businesses, with fintechs also providing ways to reduce B2B payment complexity.
According to Accenture, for ecommerce payment service providers, value-added services beyond core payment processing and collection now account for 39% of revenue, growing at 20% per annum.
And the benefits for merchants are clear:
- A centralized way to manage not only payments but also the entire business growth.
- Higher security and fewer errors, especially those committed by humans manually performing tasks. related to payments or transaction management
- A much smoother cross-channel experience for customers, which boosts conversions and loyalty in the long run.
If 2020 took many businesses online and introduced digital payments for all of them, the next step is to bridge the gap between the digital and physical touchpoints many of them still have as they enter 2021.
And of course, it’ll require investments in tech and expert know-how – but with business profitability, or even continuity on the line.
The digital payments sector, both when it comes to P2P, B2C and B2B payments is changing – and this almost seems like a cliché. The above trends are merely a part of what is really happening behind the scenes of the digital payments market. But the direction – made so much clearer by 2020 and the pandemic – is set. We’re yet to see how 2021 verifies it – probably in a next article sometime in January 2022.