FROM CASHLESS TO DIGITAL: THE COVID-19 TIPPING POINT

COVID-19 has been a catalyst for the global adoption of cashless payments, with the disruption expected to effect lasting changes in the way people spend.

While consumers had already begun to embrace digital payment options prior to the pandemic, the health crisis has rapidly accelerated the adoption rate with more consumers seeking safer, contact-free payment options.

This accelerated adoption of digital payments will help shape a new normal as businesses begin to emerge from the crisis and attempt to navigate their post-COVID-19 futures.

Derek Cikes, COO at buy now pay later fintech, Payflex, says the pandemic represents a turning point for the payments industry.

“The acceleration towards a cashless society is one of the key opportunities that has emerged from the pandemic, bringing the advantages of digital payments  to the fore –  lower fees,  convenience, seamless delivery, greater security, and more flexible payment options.”

Derek says what makes this trend so interesting, is that historically, people used to hoard cash in times of crisis. Now, the opposite is occurring.

A study by MasterCard revealed that since the beginning of COVID-19 in South Africa, 89 percent of South African respondents have been using contactless methods to pay for groceries, 60 percent for pharmaceutical items, 39 percent for other retail items, 15 percent for fast food, and eight percent for transport.

Similarly, recent figures from Bain echo this, with estimates that by 2025, the adoption of digital payments could accelerate by a 5-10 percentage point increase globally, above what was previously anticipated from 57% before COVID-19 to 67% after COVID-19.

 

Are contactless payments here to stay?

Cash is perceived as a vehicle for the transmission of the virus. As stores, restaurants and other merchants operate in the current contagion environment, contactless payments are key in providing consumers with a much-needed sense of reassurance and security.

“Businesses have no option but to rethink their use of shared payment surfaces, with customers more conscious than ever of what they touch. People don’t want to touch ATM or PIN pads or have to hand their cards to store tellers.  Once viewed as a convenience or nice-to-have, digital payments are now viewed as a critical service.”

 

Evolution of digital payments

Just as the SARS epidemic in 2003 expedited China’s path in launching digital payments and eCommerce in the country, the virus is effecting a permanent shift towards the adoption of digital payments among consumers across all demographics.

In fact, digital payments have become instrumental for many of us to run our day-to-day lives.  As the World Economic Forum rightly points out, digital payments have “been keeping economies running and helping people reduce contact with the virus.”

From tap-to-pay, to payment apps, to digital banking, e-wallet providers, South African fintech firms have reported significant increases in the use and adoption of digital payment methods since the outbreak began in March.

“The perception of cards and cash as vehicles for transferring microorganisms has changed how people physically interact with their payments in favour of contactless options. With health and safety being top priorities, we anticipate this trend to become more permanent with hygiene measures and social distancing expected to be part and parcel of our daily realities for years to come,” says Cikes.

 

Retailers drive adoption of digital payments

Both online and brick and mortar retailers are helping to accelerate this trend with stores like Mr Price enabling consumers a contactless way to pay in-store pay via their app, and most South African retailers offering tap-to-pay-methods.  There is also expected to be an uptick in omnichannel capabilities which bridges payments in any environment, physical or digital.

Another contactless payment method driving this trend is e-wallets with over 500 million mobile money users expected on the continent in 2020. In addition, it is anticipated that the capabilities of digital wallets will expand to offer features, such as digital IDs and transaction monitoring and reporting, which is expected to create even more growth for the payment mechanism.

Flexibility needed more than ever

According to TransUnion’s Financial Hardship Survey, conducted in the United States, United Kingdom, Canada, India, Hong Kong and South Africa, one in six people lost their job in early May, with defaulting on their bills just seven weeks away. 82% of consumers indicated their household income had been impacted, and on average, consumers who were impacted, expect they will be short by R 7542.90 when paying bills or loans.

“Many  are financially stressed and need to be supported with alternative payment solutions which helps their ‘cashflow’ without incurring interest,” says Cikes.

A Report by GlobalWebIndex shows that 83% of South African consumers are expecting flexible payment options from brands.

“We have seen a huge uptake in our payment solution, which allows people to make interest-free payments over two paychecks.”

People are more financially stretched than ever, and are anticipated to seek payment solutions like the Buy Now Pay Later model that enables flexibility, and doesn’t put them in further debt.

 

Catering for consumer needs

Digital payments have become an ever-evolving solution which will continue to reflect consumer sentiment and needs.

“In the near-term, this will translate into even greater innovation in the digital payments space in order to meet changing behaviours in consumers as they increasingly move away from cash. Retailers that embrace accepting and processing payments through innovative payments technologies will lead the way as we navigate this ‘new normal,’” concludes Cikes.

 

Source: https://www.accountancysa.org.za/