In the first six months, the global revenues for payment systems declined by an estimated 22% when compared to the same period in 2019. According to BCG, from 2019 to 2024, the global payments revenue is likely to increase by around 1% to 4%, depending on the speed of recovery from the pandemic. However, even in a best-case scenario where the rebound is quick, the expected growth rate would be half the rate of the prior 5 years. 

However, in the past six months, e-commerce, digital payments, and other online services have all registered excellent growth. The pandemic has reshaped how consumers and businesses interact with each other and this will shape the future of the payments industry. 

Here are a few of the trends that were observed during this time.

Cash to Non-cash conversion

Even countries that have been traditionally cash loyal have experienced a drop in the use of cash for transactions and have seen a rise in digital payments. For instance, the UK has seen a 50% drop in cash usage in March 2020. Payments made in-person are reducing every day, as people are being encouraged to stop handling cash to curb the transmission of the virus. In fact, most businesses encourage contactless payments, with some going so far as to not accept them at all. 

Electronic peer-to-peer and consumer-to-business payments have experienced growth during this time. Debit cards, normally associated with lower value transactions, have also exhibited growth. On the other hand, ATM transactions and cash use had experienced a decline during the same period – In India, ATM usage fell to almost 50% and a steep decline was observed in the UK as well. It was estimated that transactions executed via cash will decline by 4 to 5% during this year, which is around 4 to 5 times the annual decrease experienced during the last couple of years. 

Boost for e-commerce 

The pandemic forced a significant percent of the population to shift towards digital channels for their retail purchasing activity. Industries that depend on travel such as hospitality and tourism as well those that depend on density such as entertainment are likely to be unfortunate casualties in the short term, based on how the crisis has been progressing. However, niche segments such as fresh food, pet supplies, in-home entertainment, and so on are expected to grow at better rates. In the retail sector especially, a shift in buyer behavior was observed with customers moving from brick-and-mortar to online retail shopping. This was evident from Amazon’s second-quarter numbers that recorded a 40 % Y-O-Y boosted by the growth in grocery sales. 

This shift in consumption could also lead to a shift in the payment method used. For instance, in place of using credit/ debit cards, consumers could shift to contactless payment modes such as digital wallets or cryptocurrencies.

Move from “physical” to “virtual banking”

Banks in various parts of the world are closing branches either temporarily or permanently due to the current scenario. This has been aided by the adoption of technologies for real-time payment facilities.

In the words of Deepak Sharma, Chief Digital Officer at Kotak Banks, India – “Ninety-five percent of transactions moved out of branches post-COVID. Unless there is a great need for customers to visit branches, we don’t see it happening (again anytime soon). “

“We have also seen fast adoption of WhatsApp banking and conversational banking bots. Very soon, we will see (these changes apparent) while doing small business transactions and loan origination as well. Even after we come out of COVID, this shift in habits that we (have seen) will continue,” he added.

Cross-border payment flows severely affected

Because of lockdowns introduced by Governments, international travel came to a grinding halt causing a massive decline in international transactions. This was further worsened by waivers offered on the transaction to boost demand. Inter-regional trade had a deeper impact than intra-regional which further hurt cross-border payments, while at the same time the prices of commodities such as oil dropped since demand declined. This had a 2-fold effect on the transaction values since both the volume as well as the unit price dropped. 

To conclude, crises often create an opportunity for firms to take a good look at how they conduct business. COVID-19 is no different except for the speed at which it has managed to affect change. Payment systems have been forced to accelerate and meet the challenges raised against them. The most talented firms that adapt to the situation, leap ahead of the competition, and deliver exceptional value to customers will survive and shape the industry.

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But the recent pandemic, COVID-19,  which has the whole world reeling from the repercussions of being locked down,  has made steady paychecks with health insurance benefits look a lot more promising. And while there are advantages to being in the gig economy, there are also disadvantages that cause incredible anxiety to the workers in the ecosystem, the biggest among them, undoubtedly,  being the payment question.

According to a Global Marketplace and Gig Economy Payment Satisfaction report, a survey of gig economy freelancers from various industries around the world found that 73% of gig workers are likely to leave the marketplace due to payment issues. Many gig workers and freelancers face delayed or even denied payments, and many spend weeks tracking down payments every year. And this is where companies who rely on gig-workers can make a difference and digital transformation can be a lifesaver. One could argue that adopting a digital transformation platform to meet employees’ requirements in real-time –  an instantaneous payment platform for instance – will help the gig economy thrive going forward. 

In a move that seemed understanding of this predicament, the US Federal Reserve officially announced in August 2019 that it plans to build a real-time payment service by 2023-2024 called ‘FedNow’. Hopefully, the changes that COVID-19 has brought upon the world economy spurs them on to develop and implement this sooner rather than later. 

In the announcement, the Fed Reserve invited extensive feedback from members of the banking and payment community and in a much-publicized response, Google wrote to the US Federal Reserve Board detailing the successful example of the UPI (Unified Payment Interface) based digital payment platform in India to build FedNow. 

UPI, according to the NCPI website “is a system that powers multiple bank accounts into a single mobile application (of any participating bank), merging several banking features, seamless fund routing & merchant payments under one hood.”  It also caters to the ‘peer to peer’ collect request, which can be scheduled and paid according to your convenience. 

Google listed three major qualities of the UPI worth emulating: 

• Interoperability – account to account transfer and not just an online wallet
• Real-time money transfers
• An ‘open’ system – standards are open-source so technology companies can build their implementation of the solution

Let’s look at these qualities a bit closer and understand how they can become game-changers for the gig-economy.

Interoperability

The diverse requirements of the US FinTech industry necessitated multiple channels for enabling payments. The payment systems currently in place don’t interoperate seamlessly. Private solutions are closed-loop systems too –  real-time transfers are possible only between those users who use their specific solution. This is arguably the biggest drawback of the multitude of perfectly functional payments systems that have organically sprung up over the years.

Now imagine a new platform that can now provide you with access to the funds lying in your bank account and can transfer money from your PSP (Payment Service Provider) to another party’s bank account without worrying about the PSP the other party uses. This would essentially convert all PSPs into portals to your financial world. This is what the UPI platform accomplishes.  

Real-Time Money Transfer

As smartphones are replacing physical cards and POS systems, any new system being developed should be able to authorize a payment using a pin or two-factor authentication to transfer cash instantaneously regardless of the platform the merchant uses. Without Visa or Mastercard needing to act as intermediaries. A system that combines all the existing payment rails and can transfer money to any of the nodes seamlessly, just like UPI does.

‘Open’ System

In the current payment ecosystem, different payment rails need different types of authentication information. The new system should simplify and standardize these operations – the different types of authentication for each payment rail should be handled under the hood by the new system.  The result would be an open and interoperable payment infrastructure, compatible with all the existing technologies and has the potential to integrate newer ones. 

This is what will enable any PSP to facilitate transactions to any other PSP instantaneously, leveling the playing field for banking and non-banking PSPs (Fintech firms) when it comes to managing payments. 

The Entrepreneur’s Advantage 

The biggest beneficiaries of such an instantaneous payment platform,  other than gig workers, will be small business owners and the low fixed-income individual who has to wait for a couple of days after a paycheck is deposited for the amount to reflect in their account.

If FedNow works with this kind of an open system, it will create opportunities for small and medium-sized banks, credit unions, FinTech companies, and large retailers to develop their version of PSP applications. And while developing such a system, firms must ensure that they create a simple, intuitive platform for P2P transfers and digital POS systems for their customers. 

It will also create an opportunity for payment and ‘payment adjacent’ solutions providers to develop their own version of PSP apps. For instance, even small FinTech firms can utilize their existing infrastructure and leverage digital transformation solutions to meet customer requirements, offering innovative, secure and user-friendly solutions that can compete with the likes of larger banks.  In this way, they can reposition themselves for continued success, even post COVID-19.

Having developed FinTech solutions for their partners, companies like Black Rock IT Solutions have a distinct advantage in developing PSP apps for their client partners, that companies around the globe can rely on to be top-notch.

To know more about Experion’s Fintech offerings, drop a mail to sales@blackrockdxb.com

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