Anda Kania of The Paypers provides a broad perspective on how the payments landscape looks and the trends that will influence consumer behaviour and business models
Apart from disrupting everyone’s lives, the COVID-19 outbreak has also disrupted the payments industry, bringing a sea change among customers’ behaviour, while also making businesses to adapt immediately to something that one calls it ‘the new normal’. Yet, even before the pandemic, the dynamic industry brought out new trends in payments that have the greatest potential to shape the way people buy goods and services online and offline, gearing towards an increased adoption of cashless payments.
In order to stay abreast of all the recent developments that also set the scene for the payments’ future, a thorough overview is provided. The noteworthy payment shifts illustrate the market reality as follows:
Invisible payments
Food delivery and taxi services such as Uber and Gett are great examples of invisible payments in the market today. By simply storing personal and financial information on an app, consumers can get from A to B, knowing they will be billed for this service. In these scenarios, the shopping experience is not about money, but about identity. The consumer ‘pays’ with his identity while checking in. Whereas in the traditional model the consumer pays (card/cash) while checking out. Being able to leverage digital identity with state-of-the art identity authentication and verification techniques is a key aspect of invisible payments.
The Click to Pay option
Four card networks – American Express, Discover, Mastercard, and Visa – have simultaneously implemented Click to Pay, according to the new EMV Secure Remote Commerce (SRC) industry standard. What does this mean? For merchants, it means an efficient checkout solution that offers multiple card brands for digital checkout in one integration. This option facilitates one-click payments for the guest checkout. Consumers can enrol and register by entering their email address and phone number, with no need to setting up an account. This feature aims to remove friction at checkout, especially for recurrent customers. For consumers, it means fewer steps at checkout, regardless of their payment choice, and the elimination of laborious key-entry of personal account numbers and information. Several merchants such as Papa John’s, Rakuten, Tickets.com, and more are among those offering consumers the new Click to Pay option.
Biometrics
A report from Research Nester published when global lockdowns began in February, forecasts that the worldwide market for biometric payments will grow by 36 times from by 2027, surpassing USD 15.5 trillion. Biometrics are a good element of convenience, hence a good option for a seamless authentication. To name a few recent biometrics use cases: in 2018, BBVA launched a payment method based on biometric technologies for restaurants that allows customers to reserve a table, eat, and leave without even asking for the bill; Mastercard and Visa certified contactless biometric payment cards; Touch ID and Face ID biometrics are employed on Apple Card as well; Alipay upgraded its 'Smile to Pay' service to make the facial-recognition process more accessible to merchants and customers.
E-wallets become multifunctional
Widely adopted by Gen Z and Millennials who look for cutting-edge digital features like around-the-clock access and personalisation, e-wallets are now improved with new features, advancing the development of frictionless payments. Of hundreds of e-wallets worldwide, the most popular are Apple Pay, Google Pay, PayPal, and Samsung Pay, and of course, the super apps Alipay, WeChat Pay, Grab, and Paytm, which are well-known worldwide and popular in Asia. So, what’s new about e-wallets?
Apart from constantly expanding their footprints, we have observed some patterns among the e-wallets mentioned above. These companies have noticed that cryptocurrencies have a long-term potential in the market, and for the sake of diversity, and in order to keep people in their ecosystem, most of them entered the cryptocurrency world, by enabling users to pay via this method. Spend, a multicurrency digital wallet, integrated Apple Pay, and more recently, Opera browser allowed US users to purchase cryptocurrencies via Apple Pay. Coinbase and Google joined forces to enable Google Pay users to make cryptocurrency payments, while Visa card platform Swipe partnered Samsung to allow Samsung Pay users to make payments from their cryptocurrency debit card balance. Moreover, there were some rumours that PayPal and Venmo partnered to buy and sell cryptocurrencies, yet no confirmation followed them. However, according to official news, PayPal published a letter to the European Commission revealing its plans of integrating cryptocurrencies.
Furthermore, in a bid to increase loyalty and grow the customer base, these wallets upgraded (or plan to) their services by rolling out payment cards. Apple Card was launched in the US; PayPal announced the launch of Venmo credit card; Samsung Pay Card was announced in partnership with Mastercard and Curve; and Google launched a debit card payment function in Brazil through Google Pay. WeChat Pay has also integrated American Express credit card, the card network being the first foreign company to receive this type of license.
Looking forward to European super apps, Klarna seems to strive to potentially become one – it started as a ‘buy now, pay later’ solution, and now it has a bank license, a marketplace style app allowing users to shop at multiple merchants, and it recently entered into the savings market, focusing more and more in becoming a consumer brand, while targeting both US and Europe-based consumers. Revolut launched its ‘financial super app’, yet its functionalities stick to helping customers manage their finances, and it doesn’t go into other aspects of people lifestyles (yet), like the other payment apps do. Regardless, if at some point super apps will rise in Europe, it is likely for a digital bank to be the trendsetter, as they have the right target group and infrastructure.
The BNPL options are here to stay
At present, the adoption of this payment option now known as ‘buy now, pay later’ varies by country and region, depending mostly on two factors: the solution providers that manage to dominate a specific market and encourage consumers to use ‘pay later’, as Klarna does in Sweden, or the customer behaviour driven by a developing economy, like it happens in many countries from Latin America.
In any event, there is a variable that has changed amid the pandemic: the spending trend. If consumers used to take advantage of the instalments to buy vacations and plane tickets in the past, now, consumers spend more on retail products, such as electronics or clothing and apparel. What’s more, the Gen Z is driving the popularity of BNPL further – as a demanding generation, they look to avoid high-cost and long-term debts. Therefore, if handled well, this option could be a good budgeting instrument for them.
So yes, BPLN options are here to stay, but not for spending splurge. Considering a crisis that is likely to come along with the pandemic, consumers need ways to accommodate their finances, just as merchants need strategies for customer retention. But consumers might be tempted to exploit this service and take on more debt they can handle, which might highlight a blind side of BPLN. Swedish authorities, for instance, have noticed the overspending habit of the consumers and voted a new legislation that forbids the pre-selection of a credit option in the checkout if other non-credit options are available.
The way bank payment rails disrupt card payments
European regulators’ initiatives fuel the rise of A2A payments, with Open Banking and instant payments driving the developments of this payment method.
In recent news, Worldpay has enabled A2A payments via an Open Banking Hub that allows consumers to pay for goods and services directly from their bank account in real-time, without needing to share their account details with a third party. This might lead to a new trend where the adoption of A2A payments might also be driven by the Open Banking regulations that allow third parties to initiate these payments on behalf of a customer, thus enhancing the customer experience.
The development of these projects is noticeable, as they plan to disrupt the current ecosystem where credit card schemes play an important role. Several A2A payments methods worldwide have already overpowered the cards services, like iDeal did in the Netherlands, Swish in Sweden, Mobile Pay in Denmark, and Trustly that is offering one integration to enable online banking e-payment acceptance in multiple countries. Therefore, one needs to watch how card schemes will adapt to a new payment flow, as well as to what extend the consumers will embrace A2A payments in other countries from Europe.
If we look beyond Europe, in emerging markets there is a strong push for finding affordable solutions for underbanked consumers. Government and central banks are building cost-effective infrastructures to facilitate instant payments as an alternative payment method. Good examples are PIX in Brazil – a system created by the Brazilian Central Bank, and UPI in India – an instant real-time payment system developed by the National Payments Corporation of India facilitating inter-bank transactions.
What drives digital payments further?
In a world that has been brought to a point where we don’t even know what the present holds, it’s challenging to have an accurate view on the future of digital payments, besides being sure that they will continue to shape the payment behaviour. However, we do know for certain that the winners will excel on the following three success factors:
Convenience. Payments become part of the mobile-first experience, and online payments are increasingly authorised from mobile phones. Now convenience goes beyond simple frictionless payments: the concept is perceived as mixt-used services done smoothly. Solutions for recurrent customers are likely to emerge, to enable consumers to store their payment credentials in their mobile wallets for easy access and less friction. Under SCA requirements, biometrics-based payments are likely to rise, with banks supporting a seamless authentication with 3D Secure 2.0.
Cost. Money movement solutions will be further explored as a lower-cost and transparent alternative for processing payments and as a revenue opportunity. This may also make card networks to reconsider their pricing structure and lower their fees, to keep a traditional system that relies on card schemes. And with the rise of digital payments, businesses will look to embed affordable emerging solutions, such as online banking e-payments, also known as A2A payments. On the other side, there is also a matter of cost versus conversion – if a solution is expensive but converts better, that is the option to go with.
Reach. Payments represent a two-sided market, as providers need to be able to reach both merchants and consumers. Banks, GAFA, credit card schemes, super apps seem to be best positioned here.
Bottom line, consumers are reconsidering the way they pay, just like payment providers are reconsidering their services. Yet as bright as the future of digital payments might look, the world economy should shine like a star, so all these payment methods can stay relevant.
About Anda Kania
Anda is doctor in Political Sciences, currently exploring her research skills to discover the latest trends in the payment and commerce industry. Anda has used her position of senior editor at The Paypers to analyse the hottest topics, and to discuss them with thought leaders in order to get the pulse of the payments environment.
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