Payment Industry – Positive & Negative Impacts
As we all maneuver unprecedented times and a paused economic environment, let us look at the impact on the payment industry broadly and what we should expect to see in the coming months.
Immediate Impact
Go Cashless
The immediate impact of COVID 19 has been significant in how we live our lives and changing our consumption patterns.
People are restricted to their home and encouraged to maintain social distancing. This is altering buying and payment methods, with a quick shift towards cashless options which may pose new challenges to merchants and payment processors.
1. Go Cashless /Contactless: The movement restrictions and the fear of the spread of virus through physical currency is pushing people to look for cashless options.
So not only are people using cards more than cash, they would prefer contactless options rather than the traditional swipe.
About 38% of consumers see contactless as a basic need or feature of payments, up from 30% a year ago.
People are embracing digital wallets and contactless payments. New research suggests traditionally distrustful U.S. consumers are becoming more interested in contactless payments, while in Germany more than half of payments currently made by card are contactless, compared with 35% before the corona virus crisis hit.
2. Online Transactions: Purchasing is now focused on essentials, and it just makes sense to do that on line/remote. Volumes in digital payments are growing every day given people are procuring what they need from the confines of their homes.
Global e-commerce transactions were up 23% in mid-March compared with typical weekly volume.
3. Revenue Decline: Let’s keep in mind the type of transactions that are leading to the growth surge via online today. These are more retail and essentials that are increasing. However, the big- ticket items of travel and hotels are almost at a standstill and will take a long time to bounce back.
Though the number of online transactions are steadily rising they will not easily compensate the value of transactions affected by a near stop in travel related spend. Gear up for the revenue hit that will only worsen in the next quarter.
Network Impact
Early signs of slowdown: All the three major networks have re-evaluated their first quarter expectations.
Globally there is a significant decline in cardholders spending, primarily in travel related expenses and cross border business which are high ticket items for the Networks. While the Networks have lowered growth rates as per their press releases below, this is just the tip of the ice-burg. The actual impact only started end Feb and Mar, hence we are staring at far higher decline in the next two quarters.
1. American Express
On March 17th, American Express said its first-quarter revenue and earnings would be impacted by softness in customer spending due to the corona virus pandemic.
The corporate and consumer charge card provider said that while January and February spending levels were robust, it has started to see softness in spending levels the last few days in February and into March and more widespread around the world.
American Express officials now expect first-quarter revenue growth of 2% to 4% on an FX-adjusted basis.
2. Master Card
On March 24th, MasterCard said that COVID-19 outbreak was causing further deterioration of its cross-border and other aspects of business, which will impact revenue and expenses.
The card payments company said first-quarter revenue growth will now be in the low single digits and sees a 2% impact on revenue growth due to shifts in foreign exchange rates, according to a company press release.
3. VISA INC
VISA has also changed it’s revenue outlook and warned that this quarter’s revenue growth will be about 2.5 to 3.5 percentage points lower than the outlook it shared on Jan. 30. Visa said it won’t give a forecast for future quarters until its earnings call in April.
Mid-Term Outlook
Coping & Rebuilding Again
So what do payment companies need to focus on now and how do they become conduits to ease out the challenges faced by individuals and companies.
Immediate Needs:
1. Demand for Real Time payments
Access to funds and easy disbursement is key. Need to move money quickly will only rise. A report from ACI shows that real-time payments were expected to surge post COVID, with a compound annual growth rate of 23%.
2. Contactless Payment Options
The fastest movers enabling contactless payments will be the biggest gainers. This is a functionality that is already becoming a must-have feature.
3. Simplified Lending Options
Survival is key and the only thing that will matter to majority of corporates, even mid-sized ones. For this what is most pertinent is working capital access and funding options focused on easing through the next two quarters.
Watch Out
Emerging Risks Operating In The Current Environment
As governments and organizations are struggling to keep core activities functional, protecting liquidity and cash flows with limited resources and personal to deliver work, there are certain areas that are need a look out :
1. Financial Fraud
The financial services industry is at a higher risk of fraud including online & cyber fraud, as vested interests may look at exploiting the situation. As more and more people look for online options, they may not be well informed of scammers or be prudent with internet usage. To avoid potential fraud, building cyber resilience becomes key as also educating all people on possible risks.
2. Data Security
At a time of required remote working, the risk of sensitive data being made available at less secure home environments is posing new challenges for corporations not already structured with remote working options.
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