One giant leap for cashless transactions
Taking a look back at 2020, it is clear it will be one of
those years that creates a “before” and an “after”. The payment methods we use
on a daily basis are no exception, and our new habits in this domain can
provide some keys as to what the new normal for payments will look like once
the dust settles. In reality, the events of 2020 reinforced trends that were
already in play, but they accelerated them by several years within a period of
Payment methods way ahead of projections
As an illustration of this, the Worldpay global payments
report projected early 2020 that the cash share of in-store payments would fall
from 30% in 2019 to 19% in 2023. But now, its 2021 edition shows that the cash
share of payments has already plummeted to 20% in 2020. This is arguably the
most dramatic shift in payments history. Similarly, according to a Visa Back to
Business study, in 2020 78% of global consumers changed the way they pay, and
70% used a new payment method for the first time. Here is a look at how 2020
catapulted payments years ahead of what projections predicted.
The quick expansion of card payments
Ever since the world’s first payment cards saw light in
1950, the global migration from cash to card has been set in motion. Ever more
merchants offered their customers to pay by card, while ever more consumers
migrated their payments from cash to card. Until 2020, one could describe the
shift as slow but steady: early 2020, Visa presented estimations showing that
it had a $4 trillion volume of payments in North America, but that there were
still $4 trillion worth of cash and check payments in the region. Similarly, 10
million North American merchants accepted (Visa) card payments, but there were
still another 10 million untapped merchants. However, the global pandemic
triggered a big jump in the curve.
The fall of the last bastions of cash
Another example of this quick evolution can be found in
Germany, a long-standing bastion for cash payments. As Abi Carter bluntly puts
it on Iamexpat.de, “Germans have stubbornly kept hold of their banknotes and
coins, even as other countries across the world embraced the speed and
convenience of bank cards.” But in May 2020, cashless transactions rose by 48%
in Germany compared to the previous year, and card payments were predicted to
exceed cash payments for the first time in the country’s history in 2020.
Though merchants around the world have continued to accept
cash throughout the pandemic, many customers have abandoned bills and coins
altogether, and merchants who did not accept card payments prior to the
pandemic have started to do so.
From swipe to pay to tap to pay
Even prior to the outbreak of Covid-19, customers in many
parts of the world had adopted contactless payments, where they tap their card
to the merchant’s POS terminal. In Australia for example, 92% of Visa payments
were contactless as early as 2017. In other countries, the migration had been
much slower, but during the spring of 2020, 41% of global consumers who said
their cash usage was high tried a contactless card payment, and MasterCard
recorded a 40% increase in its contactless transactions worldwide in Q3 2020.
Also, numerous countries increased the thresholds for contactless payments,
meaning that consumers could tap to pay for a larger proportion of their daily
Of course, though cash payments are rapidly decreasing, a
large part of the world’s consumers are still paying with bills and coins. But
even in the case of cash withdrawals, the trend is going towards contactless:
Switzerland for example recorded a 269% increase in contactless cash
withdrawals in 2020.
The continued rise of e-commerce
Covid-19 and the resulting lockdowns made consumers turn to
e-commerce at an unprecedented rate in 2020. In the US, e-commerce sales grew
by a staggering 44%, the highest year-to-year growth in over 20 years. In
China, arguably the world’s most developed e-commerce market, online shopping
is estimated to represent more than half of all retail sales in 2021. Although
much of this growth comes from existing users shopping more frequently, a
significant amount comes from new users. An illustration of how the Covid
pandemic triggered an inflection point and made consumers change their behavior
quickly is the fact that in Japan, online grocery sales rose from an estimated
2.5% to 5% in 2020, a remarkable shift “for a country that had been expected to
take years to embrace online food shopping because of a zeal for fresh and
perfectly presented [products]”.
E-commerce is taking over all sectors
Needless to say, this shift from in-store to online shopping
has a deep impact on many aspects of the economy, with for example nearly 60%
of US merchants saying they were forced to refocus their business towards
online sales. And this is true even outside of retail. Cafés and quick-service
restaurants (QSR) have seen their customers migrating towards drive-thru and
takeout services to an increasing extent instead of dining in.
As an example of this, a well-known global chain of coffee
shops, for which 80% of transactions in the US were already on-the-go prior to
Covid-19, has announced that to meet changing customer behaviors, it will
expand pickup stores in high density markets such as city centers while
developing curbside, drive-thru and walk-up windows in suburban areas.
P2P payments go digital too
Consumers in most countries have been able to use non-cash
payment methods for many years, and Covid accelerated an ongoing shift from
cash to cards for in-store payments. However, for person-to-person payments
(P2P)—Michael paying his friend Julia the $20 he owes her—cash still prevails
in most parts of the world.
But a few years ago, P2P payment apps started to emerge,
allowing Michael to instantly pay Julia his $20 just by tapping his phone.
Examples of such apps are Paytm in India, coins.ph in the Philippines, TNG in
Hong-Kong, Swish in Sweden, MobilePay in Denmark and Vipps in Norway. These
apps have been particularly successful in Scandinavian countries, where they
are now used by almost the entire adult population. Sweden is arguably leading
the race to becoming the world’s first cashless society: the disappearance of
cash could happen there as soon as in 2023, according to various estimations.
An expected and massive increase for P2P payments
Though other countries are still far from reaching that
point, here too, Covid has accelerated something that was already in motion.
Person-to-person payment app Zelle, for example, which is offered by many
American financial institutions, recorded a massive 62% increase in the number
of transactions in 2020. And Visa is seeing a market opportunity of $20 tln in
the P2P payments market worldwide in the years to come.
The shift from credit to debit and ‘BNPL’
The global pandemic affected certain sectors more severely
than others. Card spending in the travel & entertainment (T&E) segment
particularly has plummeted. American Express for example reported its T&E
payments were down 95% for Q1 2020. In the US, T&E and large-ticket
purchases are typically made with credit cards. In addition to the decrease in
spending in these categories, a shift from credit to debit card payments can be
observed here as in other countries, due to a rising penchant in consumer
psyche towards not spend someone else’s money, but their own.
Simultaneously, there has also been a massive increase in
so-called “Buy Now Pay Later” payments. Put simply, BNPL is a form of
installment payment where consumers pay for their purchase in a series of fixed
installments over a predefined period, which is perceived very differently from
paying by credit. BNPL global leader Klarna more than doubled the number of its
US users in 2020, and 36% of small businesses worldwide believe that the
ability to allow for installments for online payments is critical to meet
Among consumers, the growing millennial segment has proven
to find the BNPL concept appealing (54% of millennials in the UK use BNPL), and
since these consumers are used to pay monthly subscriptions to services such as
video-on-demand and music streaming, “installment plans start to look like
subscriptions that just happen to have a fixed end date”.
Cashless transactions are here to stay
Most of these Covid-accelerated movements can be expected to
settle in as the new normal for the years to come. Payment habits typically
change slowly, but once they have been adopted, consumers rarely go back to the
old ways. Only 16% of consumers worldwide say they are likely to revert to
their old payment methods even after a Covid-19 vaccine is widely available.
There is little doubt that cash will eventually be replaced by cards and other
forms of digital payments and gradually disappear in many parts of the world,
contactless transactions will go mainstream, and the consumer experience will
be ever more digital and remote.
That being said, some caution is probably advisable here
nevertheless. In the words of Mercator’s Debit Advisory Service Director Sarah
Grotta: “If you take a look back at 100+ years of payment history, we never
truly get rid of any type of payment transaction, we just add new ones”.
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