The payment industry was negatively hit by the pandemic; only time will reveal the lasting impact.
On a human and economic scale, the COVID-19 virus has wreaked havoc. One of the many ways that the global pandemic has affected consumers is how they shop. With government regulations strongly urging social distancing and essential shopping, consumers are still leery of going about their shopping in public places. As more employees were driven to work from home more than ever, this too has brought about changes in the way they shop and make their payments.
When it comes to making payments, customers are also less inclined to pay with cash, although it has yet to be scientifically proven as to whether this virus can attach itself to currency.
As a result of fears of possible contamination, customers are becoming more open to adopting digital wallets and contactless payments. Recent studies have indicated that once cynical Americans are growing more curious about contactless payments. Before the coronavirus hit Germany, 35 percent of Germans were using contactless payments. Since the virus, it is up to more than half.
How Will eCommerce Be Affected?
As more consumers are being confined at home, they are likely to buy their necessities online. There will also be new consumers who will be making online purchases for the first time and in new categories. This is particularly being seen in household items as well as groceries.
If online companies can weather the tumultuous storm, they stand to experience a long-term surge in revenue. However, this new era brings both opportunities and risk. Here are some examples:
- Amazon takeover: With the rampant closure of physical stores, forcing countless out of business, Amazon has stepped in to fill in the gap. They hope to scoop up more sales from customers that are not able or willing to go to shop at a physical store.
- Sourcing supplies: The biggest problem that online businesses face is the ability to source their supplies. With China being one of the largest suppliers in the world, the widespread closures of their factories has created massive disruption in customer fulfillment.
- Credit card fraud: The pandemic has presented radical changes in consumer behavior and that means that both retailers and financial institutions must employ robust fraud controls to stave off fraud. In fact, TransUnion has found that 22% of consumers surveyed were targeted by “digital fraud” due to the COVID-19 outbreak.
Implications For Fintech
Fintech has certainly taken a financial hit during the outbreak and is suffering from significant constraints. The Payments Journal has outlined both the negative and positive impact that the coronavirus has had on every facet of business. They are outlined below:
- Both Visa and Mastercard eliminated their “predictions for revenue” since the COVID-19 pandemic.
- As a result of travel restrictions, airlines are having to both cancel and reimburse all flights.
- Paypal has announced a decrease in “eCommerce activity” due to coronavirus
On the upside…
- Ye Yanfei of the Banking and Insurance Regulatory Commissions Company announced that blockchain is being used for “medical data verification”.
- Countries worldwide are urging the use of contactless payments to discourage the spread of the virus due to exchange of money.
The aforementioned effects of the coronavirus on the payments industry offer only a glimpse and are not representative of the entire picture of the complete economic impact. The overall implications are yet to be determined.
The virus itself and the measures taken to control it has brought unprecedented change to our lives and the economy. Although digital payments and ecommerce continue to enjoy growth, it is likely that the payment businesses will see a dramatic drop in business as overall consumer spending plummets.