The outbreak of COVID-19 has been an unprecedented shock for social and economic life globally. What started as a health crisis in a Chinese province has become a global pandemic, affecting economies’ and people’s existence.
As the global community tries to stay healthy and cope with shutdowns imposed by their governments, it is still unclear what the long-term implications of COVID-19 will be. Governments and banks have set up massive programmes to keep businesses alive, people in their jobs and money flowing. But there is still a high level of uncertainty about the extent of this crisis, and what things will look like on the other side.
One apparent impact of COVID-19 is a paradigm shift in the way people pay for goods and services. This article crystallises some early trends in consumers payment behaviours.
Why focus on payments? Because payments are an essential part of our everyday lives.
It is a technical matter of fact that people, businesses and communities are inextricably connected to each other financially through payments in contemporary society. Frictionless and secure payments are fundamental to everyone’s financial wellbeing. But there is also an emotional aspect to how people spend their hard-earned money: people mostly want to be smart about how they spend it, prefer a seamless experience and want control over the process. A new, psychological dimension has also been emerging with the COVID-19 pandemic: payments have to be available where people need to pay, and they need to be safe and ‘clean’.
Whilst eCommerce in Australia and elsewhere is growing strongly, the majority of purchases are still made in-store. What does COVID-19 mean for in-store payments?
1) Cash may be perceived as deadly
Cash has been – even before COVID-19 – associated as ‘dirty’, going from hand to hand, for years and decades. No mechanism is in place to clean or disinfect it at any point in its lifespan.
There is a strong sentiment that cash could be transmitting COVID-19. South Korea’s central bank has banned the circulation of banknotes for two weeks. Also, many merchants have chosen to discontinue acceptance of cash in recent weeks, for their own fear of getting infected, but also because consumers don’t accept physical change. This could accelerate the prevailing trend towards a cashless society. And it points to increased reliance on credit and debit cards in-store and supports the proliferation of digital payment options, including mobile and watch payments.
2) Cards are cleaner but not totally clean
From the psychological perspective of a COVID-19-impacted consumer, cards are significantly safer than cash as their card doesn’t leave their hand.
However, the safest option of card contactless (tap-and-go) is limited to lower-value transactions, whilst the payment of higher-value items still requires the customer to key in a PIN code at the payment terminal leaving a fingerprint – and potentially getting infected.
3) App-based and embedded payments are winning
For in-store shopping, mobile and app-based payment options provided by tech or fintech companies could emerge as the winners from the COVID-19 crisis.
App-based mobile payment methods combine the convenience and safety aspects of a contactless payment via a mobile phone or other devices. Their global availability provides their users with a consistent and ubiquitous way to pay.
A newer payment option is ‘Buy now, pay later’ which offers its preregistered customers a safe and convenient way to pay with additional benefits, e.g., taking the product home but scheduling the full repayment along a payment plan. People are empowered to purchase what they like and need while managing their cash-flow.
So, there’s the first part of Michael’s article on how COVID-19 is changing the way we pay. We look forward to sharing the second, and final part of the article next week.