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Shift to online e-commerce could reshape post-Coronavirus payments landscape

April 2, 2020

Jonathan Kriegel

CEO

Evidence from multiple sources suggests people across the world impacted by movement restrictions put in place to combat the COVID-19 epidemic are now making more purchases through online channels. Much of that activity thus far is over fixed-line connections in countries with fast residential broadband infrastructure. But other parts of the world, including Asia and Africa, where cellular network speeds are often more reliable will inevitably see higher numbers of transactions on mobile.

Figures compiled by Ipsosi indicate that Vietnam, India, China and Italy saw the most significant increase in the frequency of online shopping during March. The survey of 10,000 people across 12 countries found citizens in the same four territories were also more worried about the financial impact the pandemic would have on themselves and their families. This caution suggests that the overall spending across all retail channels for non-essential goods could slow down in the near term. Another research agency Omdia still expects to see an additional US$175bn of e-commerce revenue in 2020 (up 5% in 2019), driven in part by changes in COVID-19 related shopping habits.

A surge in mobile usage suggests some of that extra spending on both physical and digital goods and services will derive from smartphones. After city lockdowns in China commenced in January 2020, in February daily time spent using mobile apps in the country jump 30% to five hours a day on average compared to the same period in 2019, according to App Annie. It was a similar story in Italy, which saw mobile app usage up 11% year on year, with Japan, France and Korea up 7%.

Downloads of Android and iOS business apps from associated app stores in Italy surged 85% in the first week of March 2020, and 135% from the same week in 2019. There is also evidence to suggest that consumers are playing more mobile games while being at home, with average game downloads from the iOS App Store in China up 80% in February compared to the average for the whole of 2019, and up 25% on January 2020.

Indications that people are also spending more time watching more video content on all devices are also emerging. Nielsen Dataii recently examined how COVID-19 has affected media consumption across North Asia (China, Hong Kong, Taiwan, Japan and South Korea) and discovered significant increases in hours spent watching all forms of TV, including streaming media. In South Korea consumers extended their use of mobile apps in the first week of March compared to the last week in January – particularly food delivery (up 124%) and e-commerce (up 43%) – but also games (up 5.7%), and video (up 8.4%). The company also noted an 8.7% spike in the time spent on websites in the “Entertainment – Videos/Movies” category in Japan in the first week of March compared to the average in first three weeks of February.

Omdia estimates that video streaming traffic has jumped by at least 12% recently, with the recent launch of Disney+ earlier this month alone forecast to add more than 5m additional paid subscriptions in Europe. Downloads of US video streaming apps suggest consumers there are looking beyond the subscriptions many already have with the likes Netflix, Amazon Prime Video, Hulu and Disney+. Roku, which expanded beyond set-top boxes and media streaming sticks to offer a mobile app in 2018, and Pluto.tv (a free advertising-funded or AVOID) entered the top-ten rankings in the first week of March, at the expense of sports-focused channel ESPN in the absence of competitive fixtures since restrictions began.

How they pay for that digital content is another matter, but the very fact that people are prevented from visiting either ATMs or branches of their local banks to withdraw cash, pay bills and view balances is likely to precipitate a broader shift to online and mobile banking. Cash usage in Britain, for example, is estimated to have dropped by half since the government announced a widespread lockdown on 20th March according to figures supplied by the UK ATM network Link, greatly influenced by the absence of shoppers going outside of their homes to access ATMs.

As long as access to cash is restricted, housebound consumers are likely to seek alternative ways to organise their finances and fund transactions. App Annie reports that fintech apps too saw surges in the numbers of hours spent using them in the first week of March 2020, notably Japan (up 55% compared to March 2019) as well as Korea (up 35%), the US (up 20%) and China (up 20%).

Individual payment providers and merchants alike are already engaged in campaigns designed to make it easier for customers to cope with COVID-19 disruption and introduce them to the ease and convenience of mobile payments, a first for many. UK fintech SumUp is waiving fees on mobile payments, including charges usually levied for digital invoices for example. Kenyan telco Safaricom too is waiving fees for its pioneering M-Pesa mobile money service in Africa. Restaurants in the US, including FastCasual and Edible have reduced or waived fees for takeaway orders submitted through its mobile app and web page. Papa John’s pizza company hired up to 20,000 new restaurant team members to support an expected surge in online and mobile orders for home delivery.

In the UK, the spending limit for contactless card payments will be raised from £30 to £45 as of 1st April following similar decisions from other European nations driven by the financial services sector response to the COVID-19 crisis. And mobile payments authenticated by biometric technologies will have no limit at all.

However, large payment providers – including Mastercard, Paypal and Square – are issuing profit warnings and revising their financial performance outlook downwards, with the growing uncertainty and the weakening of discretionary consumer demand, especially as it relates to travel and leisure.

We believe that despite the near-term impact, digital payments ecosystem will emerge more robust in the post-COVID19 world. For instance, Deutsche Bank’s “Future of Payments” report – Cash: the Dinosaur Will Survive for Nowiii – published last month surveyed 3,600 customers across the US, UK, China, Germany, France and Italy. It concluded that the volume of digital payments would grow at “light speed” over the next five years, arguably leading to the extinction of the plastic card, but not cash.

Deutsche Bank also forecast that by 2025, mobile payments will quadruple in volume to constitute two-fifths of in-store purchases in the US with similar growth expected in other developed countries. In developing economies like the Philippines, Vietnam, Thailand and others in the APAC region where smartphones are already ubiquitous, consumers may leapfrog from cash to mobile payments, without ever owning a plastic card.

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