How the payments industry was disrupted in 2020

What do you get when you combine a pandemic, the need for no contact and digital technology? At least two things: 1) a recipe for making quick adjustments and 2) a massive payment transformation.

As people around the world began for the first time (at least for most) wearing masks on a daily basis, they also started using different forms of payment for a host of reasons—although nearly all reasons trace back to a need for limited contact. Now, the digital payments trend that was already growing before the pandemic has accelerated like no one could have imagined, and its effects will remain long after the pandemic subsides.

Retailers had to quickly reinvent their off-premise services in response to COVID-19. Particularly during March and April 2020, consumers needed fast and efficient delivery and pick-up services—and that was new to many retailers. While many quickly put alternative fulfillment options in place, thinking these new services would just be temporary, consumers are indicating otherwise, so business owners should prepare for this increased demand to continue.

According to PYMNTS.com, “56 percent of consumers tried out at least one new retailer since the start of the pandemic” and they’re making those choices partially based on the convenience and speed of delivery. On top of that, 31 percent say they’re willing to pay $5 to get same-day deliveries—and 22 percent said they’re willing to pay to get curbside pickup.

As reported by Nation’s Restaurant News, many restaurant owners and operators understood that they needed to make permanent big changes months ago—like Taco Bell’s CEO Mark King, who quickly recognized that consumers were learning to take control of their ordering experience. He also realized that their desire for contactless, easy, efficient ordering will continue after the pandemic.

“This crisis is really accelerating the future,” King said. “We will move much faster now. And we will be able to move faster because that is what the consumer is demanding.”

This makes analyzing loyalty data really important. Data analytics are key to understanding what customers are demanding, how services are meeting or falling below expectations and where you have areas to improve—such as targeting a certain demographic or zeroing in on the places where sales get aborted in an effort to reduce friction.

It should surprise no one that digital payments have seen exponential growth in 2020—with some claiming digital trends have advanced 10 years in just a few months. Some of that push came from the WHO when the organization recommended that consumers use digital payments to reduce contact and slow the spread of COVID-19. Fast-forward to today, and consumers have become more accustomed to digital payments and the benefits like convenience, ease and speed.

In September, the European Commission adopted a retail payments strategy for the EU that, according to their website, “aims to further develop the European payments market so Europe can fully reap the benefits of innovation and opportunities that come with digitalization.” And that very much includes the use of digital payments. 

Prior to 2020, contactless payments were available, but in some countries (like the U.S.) they hadn’t gained significant consumer traction.  And in others, they had significant restrictions on payment limits—but COVID-19 changed all of that.

Payment Source reported that “in March, Mastercard almost doubled contactless transaction limits across 29 different European countries.” And the effects of the limit increase and COVID are evident: Mastercard has stated that “78% of its European transactions were now contactless"—and that the card network expects the shift in payment choice will be permanent."

In April, Mastercard also increased Canada’s contactless payment limit to CA$250 (from CA$100) for safer ways to pay. And, in the U.K., Poland, Estonia and Ireland, the limit increases are now permanent—although, in other countries like Greece and the Netherlands, the new higher limits are likely to be temporary during the pandemic.

So, for business owners, that means contactless payments are not just here to stay but will also increase; having the ability to accept them will be expected. 

"Resilient." This might be the most important word for banks right now. And Payments as a Service (PaaS) can help strengthen your ability to meet your consumers' growing payment needs with “always on” availability. Here are just a few of the reasons financial institutions are moving to cloud-based PaaS solutions:

Modernizing legacy systems. As reported by Ernst and Young (EY), 50 percent of banks lag when it comes to upgrading their outdated IT systems. EY also reported 43 percent of U.S. banks are still using COBOL, a programming language that’s over 60 years old. Clearly, legacy technology isn’t going to support the agile payments consumers want and certainly not the omnichannel experience they’ve come to expect.  

Acquiring efficient new functionalities. PaaS brings scalability and ease, so financial institutions can make updates much more quickly. This is huge right now and will be well into the future as they need to adjust payment functionalities and have the ability to enter into new markets more easily. 

Lowering costs by bringing on a provider. When your IT staff doesn’t have to build and maintain infrastructure and instead has a provider handling that for them, you can reduce upfront costs with a monthly payment model. And the efficiency factor of PaaS can greatly reduce costs with a system that doesn’t have downtimes.

The pandemic has also boosted the use of peer-to-peer payments, or the digital payment between two parties via an app. Buy now, pay later is also surging, allowing people to do just what the name indicates, which for many can be helpful during a challenging time. 

Paypal may have been the first peer-to-peer (P2P) payment service, and while it’s still popular, it’s facing a lot more competition. Even before the pandemic, Venmo had become so popular (particularly with millennials) that phrases like, “Just Venmo me!” became a natural part of a consumer’s conversation. And the ease, convenience and social aspects of P2P payments have contributed to a big surge in use during the pandemic.

Zelle, a P2P used by U.S. banks, has seen a double-digit enrollment increase and Venmo and Paypal have seen large usage increases, too. And there are plenty of new P2Ps entering the market, including one by Mastercard. As reported by PaymentEye, Mastercard’s Moneytou P2P aims to make sending money as fast and effortless as sending a text message.

With consumers making online purchases and facing a pandemic that's making money tighter than usual, more people want to use payment installments (point of sale loans). According to CNBC, nearly half of the consumers they interviewed said they're using buy now, pay later to make purchases (especially during the holidays). And, 48 percent of them said that the four-installment payment systems would help them spend 10 to 20 percent more than if they were using a credit card.

It’s now somewhat difficult to remember what the payment industry was like before the pandemic. Yes, Venmo and other P2Ps, mobile payments and fintechs were already a source of payment disruption, but the combined 2020 changes make that earlier disruption feel insignificant now. And as digital payments transformation continues to accelerate, businesses in every industry need to adapt just as fast. It could be now or never.