The year 2020 has changed our world and how we interact with each other. It’s now clear that mobile technology will play a significant role in keeping people connected while providing safe, no-contact ways for paying. In this article, we’ll dive into how COVID-19 influenced consumer payments and what future is predicted for numerous payment methods.
Personalized Customer Experience: Cash vs. Digital Payments
Though financial and retail organizations strive to provide a variety of payment methods based on consumer preferences, the COVID-19 pandemic accelerated the growth of mobile payments, including such alternative payment methods as digital wallets and mobile money, while hastening the decline of cash payments.
The Worldplay Global Payments Report statistics predicts digital wallets to account for 51.7% of e-commerce payment volumes by 2024, while the use of plastic cards will slightly decrease to 20.8% (credit cards) and 12% (debit cards). On the whole, it’s expected that by 2024, 84.5% of e-commerce spend will be digital wallets, credit and debit cards.
During COVID-19, consumers all over the world had to change their payment preferences, even those people who had been still using cash more for their payments. Disruptions in payment types and the lockdown accelerated the decline of cash, exceeding the decline rates in earlier years. Cash was used for 20.5% of global POS volume in 2020, which is a 32.1% reduction compared to 2019. It’s worth noting that the use of cash decreased in most regions worldwide: by 21.9% in North America, 33.6% in Europe, 34.7% in Latin America, and 36.6% in APAC. So, what’s the future of payments in 2021 and later in the post-pandemic?
Moving Towards a Cashless Society: Options and Perspectives
As mentioned above, global payment trends prove a change in preferences towards mobile payments. However, the term ‘’mobile payments’’ implies several types of payment methods performed via mobile devices, including mobile money, mobile wallets, and mobile banking. Here is a quick overview of the three types and their perspectives in the post-COVID-19 times.
Mobile Money
According to the recent State of the Industry Report on Mobile Money 2021, $70 billion was transacted via mobile money in December 2020, while 300 million accounts are being used globally every month. It’s supposed that the growth of monthly users stands for mobile money being brought in from the margins of the financial system, and is now getting more attractive for users.
Based on the above-mentioned report, there are 1.2 billion accounts registered in 96 countries worldwide, so mobile money providers have become very popular among consumers, offering an alternative socially distanced channel for payments. The mobile money ecosystem covers numerous consumer payments such as social transfer payments, savings, credit, insurance, and international remittances, which makes it beneficial for consumers, even after the pandemic is over.
Mobile Wallets
Digital wallets used to store and access payment details are gaining significant popularity among consumers due to moving away from cash-dependent payment methods during the COVID-19 pandemic. The research shows that contactless payments have increased even among cash-dependent user groups such as older people and inherently cash-dependent countries (Japan and Germany).
In addition to limiting the spread of COVID-19, digital wallets can be a boon to consumers in a post-pandemic, too. Users can store loyalty cards, digital coupons and don’t have to remember credentials and PINS, which makes both in-store and online shopping experience more convenient.
Mobile Banking
Initially, banks have been combining two channels to provide remote services, including internet banking and mobile banking. The trend to use mobile banking more than internet banking has become quite obvious, so it doesn’t require any stats to prove it. Moreover, the COVID-19 lockdown has boosted the growth of mobile banking users, and the figures speak for themselves. According to a study by ‘’The Financial Brand’’, by the fall of 2020, 44% of retail banking consumers said they were using their primary institution’s mobile app more often, and three out of every four said they used it at least once a month.
The increase in mobile banking use compared to online banking is observed among the three consumer groups such as Millennials, Gen X, and Boomers: by 2-5% on average for each group. Still, the availability of a wider range of devices at home during the lockdown has stimulated consumers to use online banking more than in pre-pandemic. The Financial Brand’s study proves this trend among Gen Z, Millennials, and Boomers.
Lessons COVID-19 Taught Us About Improving Digital Payments
The COVID-19 pandemic has boosted digital payments due to the need for social distancing, making them vital for daily financial operations. On top of this, social distancing taught us that contactless payments can be an additional preventive measure to combat COVID-19. Yet even in post-pandemic digital payments, including mobile methods can replace plastic payments methods, transforming the economies of many countries.
The governments have been encouraging the digitization of economies. Still, digital payment projects also bring challenges, faced especially during COVID-19. One should address the risk to ensure the efficiency of the digitization of payment methods, including mobile payments, in the world.
Davos 2021: Recommendations on How to Increase Digital Payments
Below is the summary of the seven recommendations to improve the delivery of digital payments identified by a group of world leaders from public and private sectors during the Davos Forum 2021.
1. ‘’Create complaint and feedback channels’’
Highlights:
- Risk – issues with accessing complaints and feedback systems;
- How to address – setting minimum standards for such systems; special channels for low-literacy and inexperienced users.
2. ‘’Increase financial and digital literacy’’
Highlights:
- Risk – challenges with understanding and accessing digital tools;
- How to address – creating education campaigns through media channels.
3. ‘’Spread information to increase inclusivity’’
Highlights:
- Risk – factors excluding people from participating in digital transfer programs;
- How to address – ensuring the inclusivity of programs.
4. ‘’Learn from transaction failures’’
Highlights:
- Risk – factors that lead to transaction failures;
- How to address – collecting and tracking the reasons for failure.
5. ‘’Provide details about cash-out points’’
Highlights:
- Risk – no information on cash-in/cash-out points;
- How to address – creating a platform to map cash-in/cash-out options.
6. ‘’Avoid overcharging’’
Highlights:
- Risk – overcharging for digital payment transactions;
- How to address – providing clear pricing guidelines.
7. ‘’Observe social distancing’’
Highlights:
- Risk – overcrowding in cash-in/cash-out points.
- How to address – increasing digital transaction limits to reduce the need for cash-out.
(The full version of the recommendations is available on the website of the World Economic Forum.)
Finally, due to the popularity of contactless payments via mobile devices, a wide variety of mobile application development services have arisen to help merchants meet consumers’ payment preferences. Addressing the challenges mentioned above, financial services providers have all chances to keep up with the world’s payment trends.