The COVID-19 pandemic is transforming the consumer payments market, indicates research firm Euromonitor International (EMI). One of the significant transformations include a shift to contactless payments.
As the consumers’ in-store payment experience is changing to allow for greater social distancing, contactless payment is set to benefit. While card networks and issuers had already started the push for greater contactless adoption before the pandemic, both consumer and merchant demand for greater distance and safety at the checkout will lead to more merchants upgrading equipment to meet consumers’ expectations. For example, MasterCard had already announced a 40% quarterly increase in contactless payments during the first quarter of 2020.
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EMI expects a transition to cash alternatives, which is already well-established in several markets around the world; the pandemic will further accelerate this transition. For in-store payments, cash can increase the physical interaction between the consumer and the merchant, while contactless is a safer way to pay. For the rapidly expanding non-store retail channel, card and electronic payments are already the standard. The transition to cash alternatives is likely to persist beyond the pandemic.
Initial spending data suggest that consumers are putting down their credit cards in favour of debit or other “pay now” card functions, points out Kendrick Sands, global head – consumer finance research, EMI. In times of increased uncertainty, consumers pivot from utilising higher reward “pay later” card functions to lower or no reward debit or pre-paid cards. “We expect a decline in credit payment value going forward, while debit growth will contract to a lesser degree as total consumer spending slows. In the case of commercial payments however, we expect many struggling small and medium businesses to utilise more commercial credit to cover short- and medium-term expenses.”
On the other hand, EMI believes fraud levels might accelerate with more online payments and electronic transfers. In the US, the largest market in terms of total value lost to fraud, there has yet to be a comprehensive solution to address card-related fraud. With greater volumes, there could be greater losses to fraud. Additionally, with government disbursement of stimulus payments to consumers in several markets globally, cheque fraud may also increase, warns EMI.
“While these trends may not impact every market around the world, and much depends on the duration of quarantines within markets, initial data suggest that developed markets will face a more negative economic impact as a result of the pandemic,” Sands states. “Stimulus measures have the potential to limit the impact on some sectors of the economy, as well as provide greater insulation from the pandemic to consumers and businesses. Emerging markets are expected to experience the negative economic impact from the pandemic, but will likely see greater shifts in consumer payments away from cash to electronic and card alternatives.”