It has been a year of momentous change for the payments
industry. Previously, emerging trends have seen a massive acceleration as a
result of the pandemic. Years of transformation transpired in just a few months
with rapid shifts in both consumer behaviors and merchant expectations for
e-commerce.
For instance, cash usage waned even further this year
amongst fears around the pandemic, leading to a coin shortage across the
country with many merchants pointing consumers to digital payments if they lack
exact change. According to McKinsey’s
2020 Global Payments Report, by the end of 2020, we can expect a drop of four
to five percentage points in the share of global cash transactions.
The pandemic – while undoubtedly awful – has been rocket
fuel for digital transformation, providing an opportunity for the payments
industry to innovate. This year, for example, online payments via bank transfer
have continued to proliferate, while installment schemes have been named as one
of the fastest growing online payment methods worldwide.
So, after a year of such rapid transformation, what can we
expect to see in 2021? And how will permanently altered consumer behaviors
shape online payment preferences?
Installment Payments are Changing Mindsets on Credit
It is safe to say local payment methods, the nontraditional
payments such as bank transfers, e-wallets, cash-based digital payments and
local credit cards have seen huge growth over the last couple of years. They
are now actually the dominant payment methods globally, used in more than 70%
of all online transactions. Local payment methods (LPMs) continue to play a key
role in accelerating digital adoption, particularly in emerging regions. In
China, for example, LPMs generated $43 billion in revenue in 2019.
In 2020, consumers have been more inclined than ever to try
different payment methods, in a search for greater convenience and heightened
security during national lockdowns. According to Paysafe’s LiT research, 56% of
global consumers mentioned that 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
interest-free ‘buy now pay later’ (BNPL) concept, with payment providers such
as Klarna, Afterpay and Affirm leading the charge. Over this past holiday
shopping rush, 44% of US consumers mentioned the availability of buy now, pay
later is very important in determining how much they spend with retailers. Over
the Black Friday weekend, Afterpay saw a 186% increase in sales, while Klarna
processed an astonishing five times more transactions than in the first four
years of their operation combined.
Research from Kaleido predicts that BNPL value will reach
over 12% of total global e-commerce spend on physical goods by 2025, showcasing
the staying power of this trend.
Ongoing furlough measures and job losses have seen consumers
face unprecedented financial strain this year, resulting in a reliance on ‘pay
later’ schemes over traditional payment methods due to their flexible nature
and lack of financial penalties. With the economy not expected to recover to
pre-COVID-19 levels for some time, this is a trend we see continuing into 2021.
As such, this is certainly a payment method online merchants need to offer,
now.
Staying competitive in an increasingly digital age will
be harder
It’s no surprise that the figures from 2020 reflect a
massive boom for global e-commerce. The ‘quickening’ effect, as coined by
McKinsey, describes a 10-year shift in e-commerce experienced in just 90 days.
During June 2020, during the height of the strictest lockdowns for many
countries, e-commerce sales grew 34% year-on-year – the highest growth rate
reported since March 2008. And consumers were not turning to their trusted
brands during this critical period. Many shoppers branched out to new
retailers.
Disruptions in brand loyalty have created a wealth of
opportunities for businesses big and small, pushing them to take their
operations online and across borders. Facebook even launched its own shopping
feature to enable growing businesses to sell to customers.
E-commerce is now king as US online sales have jumped 37% in
Q3 alone, while experts predict Amazon will have received 42 cents of every
dollar spent this holiday season. This digital surge will continue to
proliferate as shoppers will turn to online channels even after the lockdown
restrictions start to lift. In 2021, it won’t be adequate for merchants to only
support card transactions online if they want to stand out in a crowded market.
According to PPRO’s own research, 42% of US consumers will
abandon their baskets if their preferred payment method is not available at
checkout. While recent findings reveal the global average rate of cart
abandonment is as high as 75.6% – causing brands to lose up to $18 million a
year in revenue. We expect this demand to continue, putting pressure on
retailers to expand current payment offerings.
Payments should prepare for hypergrowth
Rather than an evolution, the pandemic has been a
revolution. It’s turbocharged digital payments and changed customer
expectations and behaviors overnight.
More and more customers are now online, looking for products
or services that suit their very specific needs. A shopper might look across
borders for what they want: better-quality products, more payment methods
accepted, stronger brand loyalty, and more. Merchants could reach untapped
markets by offering the right mix of goods, user experience (UX), local payment
methods and delivery options.
With over 500 significant local payment methods across the
globe, each country will have different payment preferences. To be able to
scale up and succeed in the new normal, merchants must work with payment
service providers to activate as many payment methods as possible at the
checkout page.
2020 has seen a huge change in relation to consumer payment
preferences, but 2021 will be all about addressing that change and seizing the
opportunities that have emerged. Merchants must get ready now, or else, risk
losing out to the competition.
While 2021 will certainly be another challenging year for
the economy, the future for local payment methods (and savvy retailers who
offer them) will certainly be very bright.
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