By Stefan Merz, Chief Operating Officer at PPRO
It has been a year of major changes for the payments industry. Emerging trends have seen massive acceleration due to the pandemic. Liquidity, for example, has declined further this year amid rumors that cash manipulation could spread the infection. In March, ATM withdrawals in the UK fell 60%, suggesting that cash payments will drop to just 9% of all transactions by 2028. According to the 2020 Global Payments Report from McKinsey, by the end of 2020 we can expect a drop of four to five percentage points in the share of global transactions made in cash.
The pandemic – while undoubtedly horrific – has been the driving force behind digital transformation, providing an opportunity for the payments industry to innovate. This year, for example, online payments by wire transfer continued to proliferate, while ‘buy now, pay later’ (BNPL) systems were named the fastest growing online payment method in the country. UK and around the world.
So, after a year of such rapid transformation, what can we expect to see in 2021? And how will constantly changing consumer behaviors shape online payment preferences?
Buy Now Pay Later (BNPL) will be the new payment method of choice
It’s safe to say that local and alternative payment methods – any payment method other than credit or debit cards – have seen tremendous growth over the past couple of years. These local payment methods (LPMs) continue to play a key role in accelerating cash substitution, particularly in developing countries. In China, for example, LPMs generated $ 43 billion in revenue in 2019.
In 2020, consumers have been more inclined than ever to try out different payment methods such as mobile payments, bank transfers and e-wallets, in a quest for greater convenience and security during national lockdowns. According to the Paysafe LiT study, 56% of global consumers said they used a new local payment method in the first month of the pandemic.
The payment method that has taken the world by storm is the “buy now, pay later” (BNPL) interest-free concept, with payment providers such as Klarna and ClearPay leading the charge. In fact, Klarna reported a 43% increase in deal value in the first nine months of the year.
A study by Kaleido predicts that the value of BNPL will reach more than 12% of total global e-commerce spending on physical goods by 2025. Additionally, Europe will be responsible for $ 347 billion in e-commerce spending via BNPL mechanisms by 2025, or 30% of total e-commerce spending in that year.
Ongoing leave measures and job losses have seen consumers face unprecedented financial strains this year, leading them to rely on ‘pay later’ systems rather than payment methods. traditional. Given that the economy is not expected to return to pre-COVID-19 levels for some time, this is a trend we see continuing through 2021. As such, it is certainly about a payment method that online merchants must offer. Now.
Staying competitive in the increasingly digital age will be more difficult
It’s no surprise that the 2020 numbers reflect a massive boom in global e-commerce. The “ accelerator ” effect, invented by McKinsey, describes a 10-year change in e-commerce in just 90 days. In June 2020, at the height of the tightest lockdowns in many countries, e-commerce sales grew 34% year-over-year – the highest growth rate since March 2008. And consumers did not turn to their trusted brands during this critical time. Many buyers have turned to new retailers.
The disruptions in brand loyalty have created a multitude of opportunities for businesses large and small, pushing them to conduct their operations online and across borders. Facebook even launched its own buying feature to allow growing businesses to sell to their customers.
In Europe’s three largest markets (France, Germany and UK), up to 80% of shoppers now make at least half of their purchases online. What’s more, a Visa study finds that 74% of UK consumers believe they will continue to prefer online shopping even after lockdown restrictions start to lift. In 2021, it will not be enough for merchants to only support online card transactions.
According to PPRO’s own research, 44% of UK consumers will abandon their shopping cart if their payment method is not available at checkout. Recent findings reveal that the global average cart abandonment rate can reach 75.6%, costing brands up to $ 18 million in revenue per year. We expect this demand to continue, prompting retailers to expand current payment offerings.
Transparent payments must meet higher security standards
As digital payments head towards a global tipping point, the need for tighter regulation and security will only grow. For Europe, the second payment service derivative, also known as PSD2, has been under discussion for some time. And, although it has been delayed a second time to allow adequate preparation time after COVID, the new September 2021 deadline will arrive soon enough.
For countries outside of Europe, two-factor authentication is also gaining popularity. In 2019, Australia released the Card Not Present Fraud (CNP) Mitigation Framework, requiring Strong Customer Authentication (SCA) when a merchant’s fraud rate is above the recommended rate for two quarters. consecutive. India requires two-factor authentication for all domestic debit and credit card transactions over Rs 2000.
SCA, which falls under the new PSD2 regulation, was designed to reduce fraud and further secure online payments. However, this will require retailers to create additional authentication in the checkout page for all transactions over € 30.
As 2021 approaches, payment providers and merchants must work together to ensure they are ready to adapt digital stores to these new requirements, while ensuring that the payment process is fully transparent to the customer. customer. While the pandemic delayed initial plans for many new PSD2 process implementations, it has also created an increased need and awareness regarding remote client verification.
2021 will be the year for action – ensuring customers are properly protected in an increasingly cyber world.
Payments must prepare for hyper-growth
Rather than an evolution, the pandemic has been a revolution. It was turbocharged digital payments that changed customer expectations and behaviors overnight.
More and more customers are now online, looking for products or services that meet their very specific needs. A buyer can look across borders for what they want: better quality products, accepted payment methods, increased brand loyalty, etc. Merchants could reach untapped markets by offering the right mix of products, user experience (UX), local payment methods, and delivery options.
With over 500 major local payment methods around the world, each country will have different payment preferences. To be able to scale and succeed in the new normal, merchants need to work with payment service providers to enable as many payment methods as possible on the checkout page.
2020 has seen a huge shift when it comes to consumers’ payment preferences, but 2021 will be about dealing with that shift and seizing the opportunities that have presented themselves. Traders need to prepare now or they risk losing out to the competition.
While 2021 is sure to be another tough year for the economy, the future of local payment methods (and the savvy retailers that offer them) will certainly look very bright.