In the United States, consumers may come out of the pandemic expecting more from their payment providers, especially as it concerns speed, security, and trust. In the UK, contactless payment usage in shops has been on the up. In June 2020, contactless transactions accounted for 56% of all debit card transactions in the United Kingdom, reflecting the adoption of the former, especially in light of the new £45 contactless payment limit. Additional insights, data, and statistics on the impact of COVID-19 on the payments industry in Europe/the United Kingdom and the United States have been provided below.
- The necessary lockdown in the United States harmed the health of small businesses, which in turn led to employee layoffs in these organizations. Consequently, those laid off are unable to meet their credit card obligations. According to McKinsey, “historically, credit card charge-off rates have had a high correlation with the national unemployment rate; however, the relationship may soften in the near term, due to government intervention, a financially stronger consumer, issuers’ forbearance programs, and the nuanced differences in the nature of unemployment.”
- From the image above, unemployment may increase to 16.1% in 2020 with credit card charge-offs increasing by 8.1% (compared to 3.8% in 2019).
- Due to the pandemic, consumers are also more likely to wait to make all their purchases at once, at large merchants with a digital presence that also offer house delivery or pickup options. This means that the volume of payment transactions is shifting to large merchants. As these large merchants are relishing their power to bargain with payment networks for a reduction in processing fees; this eats into the payment networks’ profit margins.
- Added to the above point, “consumers have been canceling their transactions, such as travel, sporting, and other entertainment tickets, raising chargeback volumes.” This further puts a strain on payment providers’ liquidity.
- The switch to and growth of digital commerce during the pandemic has attracted more threat actors. To mitigate these threats, the “use of tokenization to secure cardholders’ confidential information will potentially accelerate.” For perspective, Visa’s tokens currently in use by 13,000 merchants recently reach more than one billion transactions.
- Particular states where payment providers need to be wary of frauds include California (16%), Florida (13%), Texas (12%), and New York (8%), all which account for 49% of all COVID-19 fraud cases in the second quarter of 2020.
- It is yet unclear if the United States will become a cashless economy despite the significant rise in digital payments; for example, a study by Visa shows that contactless payments grew by 100% year-on-year in the United States. This is because, notwithstanding the fears of payment gateways that require touch and increasing preference for no-touch payments, Americans are still hoarding cash as the future remains uncertain. To this end, “whether consumers’ preference for using cash returns when the US economy comes out of the lockdown will be a dynamic to watch out for in the coming months.” That said, about 20% of respondents in an EY survey notes that they will be using less cash and adopting contactless payments over the next couple of years.
- Consumers may come out of the pandemic expecting more from their payment providers, especially as it concerns speed, security, and trust. The effect of this may result in real-time push payments gaining traction in consumer-to-business payments, “as consumers begin to expect the same speed of money transfer when paying bills, receiving a salary, and making purchases that they get in person-to-person (P2P) payments.” Additionally, they may also “expect faster decision-making when applying for financing, with quicker approval rates and near-real-time access to a new credit line to pay for their needs.”
- Payment Initiation Services that make use of Open Banking was on an upward trend even before the start of the pandemic. However, since the onset of the pandemic in the United Kingdom, there has been “an increase in transactions initiated by Payment Initiation Service providers, largely driven by donations made to charities.” Payment Initiation Services “offer the opportunity for consumers to pay for goods and services in shops and online directly from their accounts over the Faster Payments system, rather than using a debit or credit card. Using Payment Initiation Services will cut out the need for other steps to process a payment and be a direct, potentially cheaper and faster way for merchants to be paid.”
- As a result of the pandemic, many countries in Europe, including France and the United Kingdom increased the limits on contactless cards; in the UK, it moved from £30 to £45, and from 20 euros to 50 euros in France. In the UK, contactless payment usage in shops has been on the up. In June 2020, contactless transactions accounted for 56% of all debit card transactions in the United Kingdom, reflecting the adoption of the former, especially in light of the new £45 contactless payment limit.
- In June 2020, the total value of credit card transactions grew by 22.9% over the value in the previous month. Experts from UK Finance suggest this may be as a result of households trying to make all their purchases in one big transaction as they isolate at home. In other credit cards related insight, the “UK’s annual growth rate of outstanding balances on credit cards continue to decline, falling by 13.4% year-on-year, suggesting customers used the lockdown as an opportunity to pay down credit card bills.”
- There were 933 million debit and credit card transactions made in the United Kingdom in June, a 2.7% decrease over May volume, and 43.1% down in June 2019. Despite the 43.1% decrease in June 2019, online card spending accounted for 22% of the volume of transactions in June compared with 14% in June 2019.
- Businesses in industries such as sporting arenas, hotels, and restaurants are adopting digital payment methods that would enable them to revive their businesses as soon as the lockdown is lifted, as they all seek to avoid cash. For example, Tappit noted that it has signed long term – five to 10 years – deals worth £20 million in the past two months from businesses in these industries. Tappit is “a British company that provides data gathering and cashless solutions such as wristbands and apps connected to a credit card for use at festivals, sporting matches and other events with large crowds.”
- Research by Accenture predicts that cash usage will dwindle by 11% in 2020. In Italy, a notorious pro-cash market, cash usage is expected to decline by just 5%. However, in the UK, a cash-averse market, cash usage is expected to shrink by 28%.
- The same research by Accenture projects that point-of-sale card turnover will decline by 3% in 2020 in the six markets – the UK, France, Germany, Spain, Italy, and the Netherlands – it analyzed. According to the report, “we project that the decline will reach its low point over the summer and into September, before bouncing back modestly towards the end of the year.”
- In a similar vein, Accenture’s model also suggests that payment acceptance revenues in the same six markets will reduce by 7-14% in 2020. This means that in the worst-case scenario of a 14% reduction, payment acceptance revenues will decline by €2.2 billion, while the best-case scenario of a 7% reduction will lead to a decline of €600 million. In particular, Accenture projects that “commercial card issuers specializing in travel and entertainment payments face a particularly daunting challenge, with spending predicted to decline 62 percent compared with 2019.”
- Forrester predicts that across the UK, France, Germany, Spain, and Italy, retail sales will shrink by 3.6%, a decline of €103 billion ($121bn). Forrester also expects a 6.6% contraction in offline retail sales across these same markets. On the other hand, online retail sales across these markets are expected to grow by 17.7%.