6 minute read 1 Oct 2020
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Three ways COVID-19 is changing the payments industry

Jennifer Lucas
By Jennifer Lucas

EY Americas Payments Consulting Leader

Industry veteran. Payments trailblazer. Visionary strategist. Driven innovator who holds several patents. Passionate about the future of payments and a globally connected ecosystem.

6 minute read 1 Oct 2020
Related topics Banking and capital markets Payments
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How is the COVID-19 pandemic influencing payments innovation? Learn more by watching EY’s recent webcast.

Three questions to ask 
  • How have COVID-19-related changes in consumer behavior influenced the payments landscape?
  • What challenges are corporate clients facing due to the pandemic and what is the impact on B2B payments?
  • What is the future of payments, and which changes will be sustaining?

Digital payments volumes have soared since the onset of the COVID-19 pandemic, generating as much as 10 years’ worth of growth in just four months. The trend has been spread across B2C, B2B and P2P spaces, and much of it appears poised to stick. The payments world is transitioning to digital-first and there’s no turning back.

Payment providers are seizing on those adoption rates as an impetus to accelerate digital projects, but significant challenges and risks remain. Our latest webcast provided some updated thinking about trends and innovations for payments executives and covered topics such as:

  • Changes in customer behaviors
  • Threats and risks
  • Operational resiliency

Three key takeaways

Changes in customer behavior

Digital adoption rates: Digital retail transactions have increased dramatically since March. In addition, tap-to-pay usage increased 150% in March from a year earlier, according to Visa.1 In April alone, the number of customers registering for mobile banking rose 200%, while mobile banking traffic jumped 85%, according to a report sponsored by NCR Corporation, a processing firm.2

B2B payments: A majority of B2B payments still involve paper checks and invoices, though with more employees working remotely an operational shift is in the works. Many firms that lacked digital-payment sites for customers before the pandemic now have them. About 60% of nearly 2,000 webcast participants cited adoption of electronic payments as the most meaningful change in the B2B space. 

 

Electronic payments

60%

of nearly 2000 webcast participants cited adoption of electronic payments as the most meaningful change in the B2B space.

Contactless cards: As the impact of the coronavirus continues, consumer reluctance to use cash, checks or signed receipts has fueled a surge in contactless payments,3 such as tap-to-pay technologies in grocery stores and other brick and mortar retail outlets. Fifty-three percent of webcast participants said that contactless cards have seen the greatest increase in adoption during the pandemic but note that the use of digital wallets, P2P mobile apps and QR codes also are on the rise.

Threats and risks

Security: Digital security is a top concern identified by 68.5% of webcast participants as the factor most valued by consumers in a payment experience. To that end, expect to see wider deployments of biometrics, click-to-pay and other tokenization technologies, as well as behavioral analytics, to enhance security.

Digital security

68.5%

of webcast participants identify digital security as the factor most valued by consumers in a payment experience.

Fraud: Fraud is on the rise centered most notably on higher volumes of card-not-present transactions and scams in the P2P arena. At the same time, providers with unsophisticated fraud prevention strategies were forced to adapt to changes in customer behaviors, such as buying 10 bottles of hand sanitizer at 3 a.m.

Going forward, expect to see greater adoption of machine learning and artificial intelligence both for authentication and in risk management models and the development of risk and analytical tools that can leverage big data in new and innovative ways.

Customers: The pandemic sparked huge volumes of chargebacks — and disputes — for travel that could not be completed and recurring payments related to subscriptions and memberships that could no longer be used, creating friction points for both consumers and businesses. Streamlining data flows to eliminate the need for chargebacks and processing those that come through more efficiently has become a priority.

Operational resiliency

Operational impacts: The growth in digital payments has been so sudden and steep, many financial institutions (FIs) and providers were not ready for the operational impacts. Many built digital portals to allow clients to access services that were not available in the past, but systems that relied on manual or paper processes were shocked and call centers were overwhelmed by call volumes and complexity.

The adoption of more digital tools and the security of cloud computing can help sustain business continuity but it’s not enough. The pandemic has shifted the way we work, innovate and maintain continuity. With many workers out of the office indefinitely, operational resiliency is as much about people as it is technology.

Is this growth in digital payments sustainable? For the most part, yes — more than 95% of webcast participants said these behavioral changes are likely to remain. To maintain the momentum, providers are working to improve the customer experience through ease of use, integrated bill presentment options, real-time payments — and in the case of B2B, payment-on-delivery and payroll-on-demand applications. To build such functionality, more FIs are opening development portals to create new applications or partnering with FinTech firms to bolt on capabilities.

For years, the focus in payments has been on creating more seamless front-end experiences. Today, the plethora of different payment rails and types is forcing providers and their customers to take a more holistic view of experiences that extends into mid- and back-office processes. Providers must seize the moment with innovation; they cannot afford to stand still.

Reflecting on the last few months, 38.8% of webcast participants listed adoption of alternative payment methods as the biggest positive outcome from the COVID-19 payments landscape, while 27.1% cited digitization as the most positive trend.

 

How EY can help

Payment services

The EY Payments team serves payments suppliers (e.g., banks, credit unions, networks and PayTechs) and consumers of payments services (e.g., retailers, health care companies and other enterprises). Bringing insights from both sides of the payments ecosystem, our solutions are designed to deliver innovation, growth and higher performance, ultimately driving better outcomes.

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Alternative payments methods

38.8%

of webcast participants listed adoption of alternative payment methods as the biggest positive outcome from the COVID-19 payments landscape.

  • Show article references

    1. “Merchants and consumers turn to tap to pay as part of new daily routines,” USA.Visa.com, April 30, 2020.
    2. “Digital-First Banking Tracker,” PYMNTS.com, June 2020.
    3. “Coronavirus leads to more use of contactless credit cards and mobile payments despite cost and security concerns,” National Retail Federation, NRF.com, August 6, 2020.

     

Summary

Since the beginning of COVID-19 pandemic, we have seen an acceleration of digital payments as contactless transactions skyrocket. QR (quick response) becomes more prevalent as “touchless” commerce becomes a necessity and manual back-office payables and receivables become more challenging in a work-from-home environment. The move to digital requires stronger security, advanced authentication and better transaction decisioning. While payment providers historically have focused on systems resiliency, the need for operational resiliency has become equally important.

About this article

Jennifer Lucas
By Jennifer Lucas

EY Americas Payments Consulting Leader

Industry veteran. Payments trailblazer. Visionary strategist. Driven innovator who holds several patents. Passionate about the future of payments and a globally connected ecosystem.

Related topics Banking and capital markets Payments
Upvote