The Covid-19 lockdown has already ‘hit’ many aspects of our lives: so let’s predict some of the potential impacts upon payments. Predictions will always be contentious, but we can guarantee more accuracy than almost any forecast from January 2020.
Job security, the health service, travel, holidays, fuel, office space, public events and retail shopping have been dramatically impacted, in some cases decimated; but on a positive note, the New Scientist reported the pandemic-caused fall in carbon-emissions in 2020 of between 4.2% and 7.5% on 2019; and by only April 2020, had led to a 17% drop in global CO2 emissions.
Whilst family life has been enhanced, children have bonded more with their parents (usually a good thing!), school education has been impacted (probably a bad thing!) as has the loss of extended family contact. However, home DIY projects have risen dramatically too (not sure if this is good or bad!).
There has been less litigation, less reported violence, less prostitution, less casual sex, crime, and illness. We have all become cleaner and more hygienic (at least when we do go out). Hand gel, wipes and toilet paper sales have out-stripped razors, condoms and shampoo sales.
But what about payments?
More obviously in payments, we know that:
- Contactless payments have dramatically increased (to 78% of over the counter (OTC) sales) and rising,
- Cash use has ‘fallen off a cliff’ (60% fall) – if ‘Cash is king’ then ‘the king is dead’ or at least: ‘on his last legs!’,
- E-commerce payments have displaced face-to-face payments – driven online shopping, home delivery, ‘click ‘n’ collect’ and other models,
- Food consumption has moved from restaurants to home cooking and take-aways,
- Amazon, ASOS, Boden etc. have flourished and struggle to recruit staff to cope with sales growth; and home entertainment products sales have rocketed.
Financial crime has grown exponentially too, especially push payment scams and remote payments fraud, and driven a need for multi-factor authentication in e-commerce payments (the timing being good, but not perfect!). OTC fraud has been under control, but with less travel: cross-border transactions and forex revenues have been largely killed as well.
So prediction time…….
- Strong Customer Authentication / EMV3DS2.x
With Covid-19 and more e-commerce the UK needed to expedite complex SCA systems changes, certification and communication. But the FCA deferred enforcement from March 2021 to September 2021, which is now two years behind the original ‘EBA date’.
SCA delays will lead to more fraud in the short term; but the confusion will aggravate regulators across the EU and drive them to push harder for push-payment solutions, further revolt against the card scheme duopoly. Globally, we should then see new rush towards SCA to copy the EU solution and address a new global (but non-EU) e-commerce fraud pandemic.
- Payment Processing Costs
With higher relative card processing costs, including new EMV3DS2.x support fees, lost foreign currency and other cross-border revenues, we will see the card schemes try to reduce costs, but again increase processing fees. Again, this will fuel the ire of Europe’s regulators and accelerate the rollout and adoption of Open Banking, and much more innovation including more AISP and PISP participants.
- Central Bank Digital Currencies
With more contactless (78% OTC payments now) and more remote payments, often for smaller amounts card processing costs are increasingly disproportionate. With a 60% fall in cash use, maintaining a cash economy also gets increasingly expensive. The Bank of England sponsored a review of the Future of Finance in June 2019: and these significant changes will fuel desire and speed of changes proposed within the report to the Bank’s Governor.
Central banks have been ‘playing’ with the need for their own CBDC, and our Covid ‘attack’ will cause banks across the EU and globally to move faster and more assertively towards national and global digital currencies, to more effectively compete with the international payment brands.
In turn these will either adopt some of the current digital currencies, or more likely make them redundant and kill off their values especially and including many of the blockchain currencies such as Bitcoin.
Local competent authorities and central banks will licence and encourage companies that can help them towards this goal, but they will inevitably need to legislate further to steer the direction.
- New Commercial Solutions
With good, innovative and intuitive people being mad unemployed, they will drive new payments solutions in the market with business cases made anew from the massive impact of the pandemic; which may well be accelerated because of the pandemic or the new dynamics. People will want a myriad of new solutions that we can’t conceive of yet: but we know that our sports clubs, taxis, coffee shops, newsagents and other low-cost purchases too will seek non-cash solutions e.g. for ‘pitch/court lighting’ and booking to pay for bar bills and food, through to loyalty card scheme designs linked to bank-based push payments; and all the way up the value chain to relaunches of commercial (closed loop) digital currencies. We are likely to see a ‘second-generation’ to the disappointment that Libra-1.0 was: but this time central banks and regulators will drive the solutions. This will not involve the same people.
- New Launches, ‘same-old’ ‘big players’
Covid-19 has created a new opening for more urgent innovation and change, because every business case has changed forever. Remote commerce, remote business, home delivery, ‘click and collect’ are now ‘essential’ offerings. Instalment programmes, short-term credit, peer-to-peer lending will all see a new resurgence.
Whilst this will involve smaller innovators, it will be those that can leverage opportunities quickly and adroitly that will ‘win’: e.g. we can be assured that some or all of the following:
- More payments linked to loyalty and stakeholders like the airlines and large supermarket loyalty brands will be overhauled to leap more towards a) ecommerce, b) towards push-payments, c) cross industry business relationships.
- A UK or EU collaboration for a more localised version of the planned global; ‘Libra’ initiative (as above) but the regulatory gaps that Libra-1 saw addressed.
- Big banks and retailers with new payments and banking solutions, moving with extreme vigour and innovation-centred collaborations: both with and without regulator partnerships and sanction; often across multiple jurisdictions.
- Telecoms entering the payments space again to use their market presence and infrastructure for payments solutions, but in a more focused and successful way than they did in the last decade.
- Global – new business infrastructures
With strong guiding legislation, the EU in particular, is in a strong position to become a future centre for a new global payments’ infrastructure and a place for innovation, alongside robust governance: rather than through the USA anymore.
International governments have quashed the ability for the Chinese or Russians to lead the way (in the main) due to human rights abuses, disrespect for global IP protection, and/or anti-competitive pushes or state sponsored commercial espionage, and of course hygiene issues around Wuhan. China and Russia continue to lose their impetus in payments through being rebuked by international governments for other economic, political and social actions. However, other Asian economies must not be disregarded. They will remain behind the EU for the moment due to geopolitics, social issues, language or location, but they remain the source of great innovation and creative thinking.
We believe (hope?) therefor that the EU and maybe even the UK with a renewed political position could start to lead new solutions and direction after a Brexit, Covid19 and geopolitical shake-up. But we will have to stay on top of and lead discussions in political, economic, regulatory, trade restrictions, global diplomacy, cyber security matters, and any local conflicts.
It is clear that the Covid-19 pandemic has caused loss of life, financial uncertainty, job insecurity and has changed lives and commerce forever. But it is also accelerating technological thinking and innovation, regulation and politics, speed of change and making compelling business cases for doing something different or simply better.
The payment industry is not different. Things are going to change – for better and worse: but we can take advantage of this if we embrace the future.
Even if things quickly ‘go back to normal’ we must ensure that we do abandon ‘the old ways’ and adopt the new desire, spirit and pace of change and adopt new ways and to challenge the status quo when we need to do so.
Businesses, Central Banks, governments and national regulatory bodies should move faster than before and adopt changes faster too. If not, just in fear of the next pandemic.
We can expect a ‘fun ride’, more change, more (trade) wars and faster competition; but also the demise of some of the oldest and slower industries in the world.
About Kevin Smith
With over 25 years in the payments business, Kevin is a trusted and experienced practitioner and thought leader in payments, technology, issuance, acceptance and acquiring.
About Bill Trueman
Bill Trueman is a professional banker and a payments and risk specialist, with over 25 years of experience. He headed-up risk functions and special investigations in Lloyds Bank issuing and acquiring; acquiring and processing at First Data, and then for insurance risks at RBS / Direct Line.
Riskskill is a leading Europe-based payments and risk management consultancy. Riskskill.com is a global GARS Reviewer for Visa. For more information visit website at http://www.riskskill.com/
For further information, please contact: Bill Trueman or Kevin Smith at email@example.com