Mumbai, 4 May 2020
by Satakshi Chopra
With the COVID-19 upheaval engulfing the nations globally, with immediate, long-term implications for the economies all around the world and stirring up businesses and consumer behaviour on a colossal scale, the public and the private sector is scrambling to contain the impact and the aftermath that the pandemic brings with it. Keeping up with the situation at hand, it is consequential that the geographies assume the immediate imperative of safeguarding the communities, employees and families while dealing with the economic repercussions on the industry, simultaneously.
Whilst the forlorn outcomes of this black swan event are still incoherent, we are nevertheless, witnessing its precipitation into the functionality of major industries-including the financial and payment service companies, who are proactively mitigating the long-term effects, the situation may lead us into.
How is the Coronavirus crisis affecting payment economics? Although the payment systems have always proved to be resilient and reliable and continue to relish a generous amount of trust from the public, it is noted that with the economic disruption and drop in the economic activities under lockdown, will be severe. With a considerable dip in the GDP and the uncertainty in the overall financial outlook, there is no definitive answer as to how deep-rooted the effects will be. Nonetheless, much depends upon the complex interplay of economic activity, liquidity patterns and interest-rate panorama, and development in individual and collective behaviour.
As per McKinsey and Company’s predictions, the expected growth in global payments, which was underlined at 6 per cent, could drop by as much as 8-10 per cent of the total revenues, when compared to the global financial crisis of 2008-09, which was 10-11 per cent.
Where the projection of how the industry will perform is still based on the far-reaching effects of the virus, public-health response and its effectiveness, it is a given that the norms that we have been functioning under until now, will no longer satiate to the expectations of the changed anticipations and behavior of the customers.
Strapping up for the new normal
As the crisis pans out and we get a little more clarity on the depth and duration of the pain, here’s our observation on how the global payments landscape adapts to these fundamental changes and progress towards the ‘new normal’.
1. Universal Access: The current crisis highlighted the fact that the unanimity of necessary new technologies and digital tools is still sparse. Discarding the cash will intermittently affect a larger base of citizens and may lead to merchants, not acquainted with digital payments, to lose out more as the remote buying increases. It is crucial that now we redefine the structure where all merchants and consumers, irrespective of monetary or literary boundaries, have access to the essential tools and modes of the future.
2. Development of multi-channel payment solutions to support multi-channel commerce: The crisis has undoubtedly accelerated the growth of e-commerce and will continue down that road. Retailers, both small and medium-sized, who have until now made business through physical modes, will have to resort to digital channels for their survival. The rapid build-out of multi-faceted capabilities, which will bridge the physical or digital payments, will become a fundamental requirement for the payment players around the globe.
3. Expansion of the Contactless Payments Sector: The morbid fear of the spread of the virus from the contaminated surfaces has provided an indispensable boost to the contactless payments- both cards and wallets. Encouraging customers to resort to contactless modes of payments will help in converting reluctant users, removing barriers to further growth in the arena.
4. Focus on Digital-wallet solutions: Payments through digital devices like phone and wearables (smartwatch) was already in effect post the coronavirus debacle. Empowering wallets with features like transaction monitoring and reporting will further augment the usage of the technology. Companies which offer viable options of integrated and contactless payment modes will open-endedly have an edge over those who don’t. Make sure you tap into the market before you start losing out your customers and merchants to your competitors.
5. Transformation of bank-payments operating models: When talking about the shifting trends in the payments sector, banks play a crucial role. Adaptation isn’t just limited to the payment service providers, but banks have to readjust to the new normal, as well. The post-crisis world awaits banks to reflect their organization towards change which involves cloud-based infrastructure, automation, and analysis-driven decisions to reimagine or realignment of services.
6. Promoting co-operative competition: The possible liquidity and profitability crunch aggravated in the midst of the crisis will lead to an overhaul in the Fintech industry, eliminating initiatives lacking clear long-term economic viability. This will give way to a new landscape, geared towards a market-wide co-operation and win. Larger companies will also be reviewing their growth prospects and partnership models, given the change in valuations and market expectations.
7. Reconditioning regulatory model: Moving to frameworks that actually solve real-world problems is a must. Adapting to the new economic reality, a new-fangled symbiotic model of collaboration shall be devised between the payments sector and the regulators, focusing on innovations of the industry.