Even in a climate of uncertainty, merchants with a culture
of innovation were able to pivot quickly, adopting new electronic payment
technologies to survive the downturn. Some companies even created ways to
thrive through the pandemic, setting themselves up for long-term success by envisioning
the new normal.
Lockdown restrictions kept customers out of countless
brick-and-mortar retailers as only essential merchants such as grocers could
operate. Shops that stayed open did so at reduced capacity. It was a disaster
for the retail sector: according to a report from the National League of
Cities, major retailers shuttered over 12,000 stores in 2020, and hundreds of
thousands of independent businesses also closed.
Millions of retailers and restaurants shifted exclusively to
debit and credit cards. Large retail chains already had service agreements and
digital terminals to accept multiple payment methods, while smaller businesses
needed a quick pivot to embrace digital payments.
Covid-19 created opportunities for the fintech industry to
offer versatile, secure, and affordable new experiences while accelerating the
shift to digital. Everyone from start-ups to massive fiscal institutions are
exploring this seismic shift in the market. According to research by the
National Retail Federation and Forrester, no-touch payments increased for 69%
of retailers during the first eight months of the pandemic.
Much of this progress in payment methods comes from
financial tech industry innovators who rushed to fill the newfound need. These
companies (and the retailers leveraging their products) are able to turn on a
dime in reaction to unprecedented economic upheaval. Multi-year contingency
plans may have helped some companies survive the pandemic, but leaders imagined
better systems were able to “stop, drop, and roll,” and move beyond survival to
success.
The impact on small and medium-sized businesses (SMBs)
Covid-19 disproportionately impacted SMBs, which are often
more reliant on cash transactions and paper records than their larger
counterparts. Research we conducted last year found SMBs have been underserved
by the fintech community, generating opportunities for innovation. Many
non-chain restaurants without online ordering interfaces scrambled to implement
digital integrations with services like Uber Eats, GrubHub, or DoorDash.
Hardware or clothing stores allowed customers to order and
pay for items online and get their products the same day with curbside pickup.
This approach, ubiquitous in 2022, was an outlier in retail in 2020. Consumers
could pay electronically instead of with cash, both for convenience and Covid
prevention.
Before the pandemic, these SMBs avoided the cost of these
services. New and disruptive companies now allow businesses to save on payment
processing, get paid quicker, and pay their suppliers and vendors — all while
gaining insights into cash flow and inventory management.
Xero joined forces with payment start-up Wise (formerly
TransferWise) to manage accounts and process transactions, while Shopify
introduced Shop Pay Installments, allowing customers to “buy now, pay later”.
Even social media giant Meta introduced Shops, letting business profiles on its
Facebook and Instagram platforms create virtual storefronts.
Consumers are using less cash
Cash and cheque use was declining before the pandemic.
According to an EY study, Americans paid with cash about one-third of the time
and used cheques as often as digital payments. Lockdown made digital payments
mandatory. Before the pandemic, e-commerce accounted for 16% of all US retail
sales. Eight weeks after quarantines began, that number jumped to 27%. Morgan Stanley
reports the value of e-commerce sales at 25% in 2019, and Payments Canada says
62% of shoppers use less cash, while 42% avoid shopping at places that don’t
accept contactless payments.
This great migration to cashless systems will continue as
infrastructure increases the speed of transactions. Currently, it can take
cheques two to five business days to clear, or up to ten days for large
amounts. Meanwhile, debit or credit card transactions are virtually
instantaneous. If the payor account has enough money or credit to fulfill the
transaction, the payee receives the amount immediately. This is how e-commerce
operates, though not without risks. A stolen or spoofed card could cost a
retailer or consumer thousands of dollars. The need to authenticate payer
identity online is critical.
Many innovative companies are taking up the security
challenge. The use of digital wallets will likely grow. Big players like Apple
and Google require biometric verification using fingerprints, face, or voice
recognition to complete a transaction. Smartphones have become ubiquitous, even
in emerging markets and the developing world. Small farmers can quickly and
securely sell crops using their mobile device while safeguarding their digital
cash. Seeing the benefits of such systems, companies like BanQu are developing
blockchain technologies to provide safer transactions with lower fees.
Innovators fill the void
Digital payments represent a major opportunity for companies
willing to innovate in the space and find problems that need solving.
Construction software manufacturer Harbr, for example,
created a system to automate billing for contractors. Their product has
relieved an industry-wide bottleneck so severe that federal and regional
governments demanded builders pay their tradespeople faster.
While many payment apps focus on the retailer-customer
interaction, SparcPay helps retailers pay their suppliers, securing
transactions with encrypted connections and a protected database while
insisting all members use strong passwords and recording transactions in a
digital audit trail.
By stepping into these unexplored spaces, companies such as
Harbr and SparcPay are making sure retailers willing to pivot to digital can
thrive.
The future is digital
Digital payment systems of all sorts have seen explosive
growth, rewarding ideas that help businesses adjust to the new normal.
Companies like Drop, which supercharges consumers’ debit and credit cards and
gets them rewards with brands like Uber, Grubhub, Sephora, and Starbucks on one
app, are streamlining the payment experience on the consumer end.
Cryptocurrencies and associated technologies like NFTs and
blockchain have risen in popularity, while central banks in at least 87 nations
have considered a central bank digital currency (CBDC), which would have the
same value as the local fiat currency.
The shift from cash to innovative digital payment systems
has been growing for years, but the Covid-19 pandemic has undoubtedly
accelerated this transition. Everyone in the field of business strategy is
excited to see what revolutionary new ideas innovators bring to this emerging
space, making people more comfortable with digital payments until cash is
longer king.
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