How has Covid-19 impacted the payments landscape?

Over the past month we’ve hosted several Roundtable sessions to discuss the impacts of Covid-19 on the Payments Industry, and here is a summary of the key takeaways:

Customer behaviours have been transformed overnight

Digital payments and Online Banking are being adopted across a broader demographic and at a faster pace, whilst cash and ATM transactions have significantly reduced.

The surge in online shopping and eCommerce has forced incumbent banks to remove stringent governance processes in order to release new products and propositions quickly – the increased contactless spending limit is a good example.

Increased adoption of digital self-serving customer channels and digital-first banking has resulted in an industry wide spike in the interest of automation and AI tools, with a view to moving offshore call centres back onshore and overlaying that with a more engaging and cost-effective digital offering.

P2P payments as well as faster payments via PISPs have increased significantly, in line with the sharp increase in online transactions. This type of micro-transaction reduces the processing cost for banks and enables merchants to receive their money faster, and is already widely adopted across Europe where card payments penetration is far less.

An opportunity to reinvent organisational and cultural norms

Covid has been a catalyst for change across the industry and large incumbents have moved at pace in order to support the economy. This has shone a spotlight on the need for investment within infrastructure and development so fast product releases and updates become the rule rather than the exception.

Across the industry there has been an increase in productivity as demands on organisations from their customers have increased. Most organisations have achieved this whilst staff are working from home, which poses questions around the need for large and expensive office space moving forward.

Some offshore development teams have experienced a downturn in productivity due to poor infrastructure, which has impacted some firms as they have been forced to operate without support from key partners.

Cross border collaboration has become easier on a whole – as travel is reduced to zero the number of face to face discussions via VC has increased dramatically. In some instances, rather than having single discussions during a monthly face to face meeting, those discussions are now happening two or three times per week via VC.

The crisis has challenged business leaders to find creative ways to engage and motivate their teams. Some Leaders have doubled down on their 121 communication with their subordinates in order to promote impromptu
discussion and knowledge sharing, whilst others have grappled with different ways of bringing the team together informally to maintain personal relationships.

Key barriers to progress and challenges to overcome

To drive truly innovative transformation you need investment, and investment could be scarce as we start to see the longer-term impacts of Covid-19.

Sponsors will be looking for short-term returns and therefore may be reluctant to invest in larger transformation initiatives. Coupled with this there is also likely to be a build-up of bad debt which will hit balance sheets and could slow down investment.

Despite the short-term increase in adoption of P2P and PISPs, savvy consumers will recognise that card payments offer more security, and may look to revert back to traditional ways of spending as soon as they can.

Necessity breeds invention, and once things return to normal (however long that takes), we may see firms revert to traditional governance which will slow down the pace of change.

Summary

The consensus is that the crisis presents growth opportunities for the payments industry. The entire ecosystem has needed to react quickly in order to cater to dramatically increased volumes of online and digital transactions and has so far managed this without major incident. The test will come as we start to move past Covid-19 and the true economic impact is realised – will the appetite for innovation disappear or is this the start of a new wave of game changing transformation within payments?

We can be certain that Covid-19 has highlighted opportunities for industry wide adoption of Open Banking and further automation of business process. Payments firms will need to quickly build on their technical capability within Cloud Engineering, API integration, Robotics and Automation to stay relevant in the post-Covid world, and we expect to see an increase in onshoring and nearshoring activity as firms look to improve their operational resilience.

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