The year 2020 has been a year of momentous change for the payments industry not just in APAC but also across the world.
Trends that were identified this time last year as emerging have been hugely accelerated as a result of the pandemic. Rapid growth was predicted, but it was unpredictable on the scale that has happened.
For example, and most notably, we’ve seen cash use decline even further this year amidst revelations that handling cash could spread infection. As the pandemic spread across Asia in the first half of the year, people were quick to reduce contact with physical materials and others, and instead reaching for contactless options to carry out daily tasks.
For retail, this meant a shift toward buying goods and services online, and where necessary, paying in-store by card. In fact, many merchants simply refused cash in a bid to do their part to stop the spread of COVID-19.
In Singapore, this shift was accelerated by the government which encouraged the economy to digitalise quickly to remain competitive and to adapt to the ‘new normal’, even creating payout programmes to incentive local micro business to adopt digital payment forms.
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 transactions made with cash, and much more in some regions.
So, after a year of such rapid transformation, what does the (un)predictable future hold for the payments industry in 2021?
Buy now pay later (BNPL) will be a popular payment method
According to Paysafe’s LiT research, 56 per cent of global consumers mentioned that they used a new local payment method in the first month of the pandemic. One of these new popular payment methods is ‘Buy Now Pay Later’ (BNPL).
BNPL schemes, popularised by larger companies like Afterpay and Klarna, were this year named as the fastest growing online payment method worldwide.
While relatively new to Singapore, local fintech like hoolah, Rely and Atome, are taking advantage of the trend and stealing market share from the traditional credit card services with their interest free offerings.
Predominantly an online payment option allowing consumers to pay in instalments for goods and services, some have even made their way in-store to capture audiences as they slowly return to preferred retail outlets offering on-the-spot credit for purchases and they’re proving popular.
Research from Kaleido predicts that BNPL value will reach over 12 per cent of total global e-commerce spend on physical goods by 2025. What’s more, Europe will be responsible for US$347 billion of e-commerce spend via BNPL mechanisms by 2025, representing 30 per cent of total e-commerce spend in that year.
Also read: 4 ways digital payments are helping businesses thrive amid a global recession
With the economy not expected to recover to pre-COVID-19 levels for some time, cautious consumer spending is a trend we see continuing into 2021. As such, this is certainly a payment method online merchants need to strongly consider offering consumers in 2021 and beyond.
Staying competitive 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 the month of June 2020, amidst the height of the strictest lockdowns in many countries, e-commerce sales grew 34 per cent year-on-year — the highest growth rate reported since March 2008.
Interestingly, many consumers were not turning to their trusted brands during this critical period. Many shoppers branched out to new retailers with the ‘support local’ movement growing in popularity as people rallied to ensure the survival of local merchants who were forced to close physical outlets during the pandemic
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 on its owned platforms like Instagram and WhatsApp.
According to PPRO’s own research, one of the most-common reasons for cart abandonment at the checkout is that a customers’ preferred payment method was not available.
In fact, recent research has revealed that the global average rate of cart abandonment is as high as 75.6 per cent — causing brands to lose up to US$18 million a year in revenue. We expect this demand to continue, putting pressure on retailers to expand current payment offerings.
Seamless payments have to meet stricter security standards
As digital payments head toward a global tipping point, the need for greater regulation and security will only continue to grow.
Globally, two-factor authentication is growing in popularity. In 2019, Australia released the Card-Not-Present (CNP) Fraud Mitigation Framework, requiring Strong Customer Authentication (SCA) when a merchant’s fraud rate is above the recommended rate for two consecutive quarters. India requires two-factor authentication for all domestic debit and credit card transactions over INR 2,000.
As we head into 2021, payment providers and merchants worldwide must collaborate to ensure they’re prepared to adapt digital shops to these new requirements, while also ensuring the payments process they offer is seamless for the customer.
Also read: Lessons from the buy-now-pay-later boom
2021 will be the year for action — ensuring customers are adequately protected in an increasingly cyber world.
Payments should prepare for hyper growth
More and more customers are now online, some for the first time, and they’re looking for products or services that suit their very specific needs and they don’t really mind where they find them.
While the pandemic has meant countries are less physically connected than ever, in the online sphere, all borders have been eliminated: a shopper will look across borders (they might not even realise they’re doing it) in search of better-quality products, more payment options, preferred brands and more.
For merchants, this is a huge opportunity and one that could enable them to reach untapped markets if they are able to offer the right mix of goods, user experience (UX), local payment methods and delivery options.
With over 500 significant local payment methods across the globe, every consumer 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.
While 2021 might be another challenging year for the global economy and people as they struggle through further restrictions and lockdowns the future for local payment methods (and savvy retailers who offer them) will certainly be very bright.
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