It’s 2022 and people around the world are finding a ‘new normal’, with employees commuting to work and roads and public transport are busy once again. Consumers are spending more confidently with retailers once again. After a continued global effort to flatten the curve and months of social distancing, life is slowly returning to normality. As we reflect on 2020 and 2021, we are left to wonder if, things will ever truly be the same?
The COVID-19 pandemic, the largest pandemic since the Spanish flu in the early 20th century, had a major impact on the global economy. Social distancing drastically changed consumer behaviour with many people shifting to online and digital solutions which has subsequently introduced a new set of challenges to stores and shoppers alike. But, as humanity has always done, we came together, adapted, and innovated.
We’ve adjusted to a new normal and as we reflect on the past 18 months, let’s take a closer look at how the global pandemic has changed payments.
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How Covid-19 has changed shopping behaviour
Covid-19 was a major accelerator in the shift to digital for most of us; how we take classes, do our jobs, connect with friends, and definitely how we shop. Online shopping had already been the norm with Gen Z and Millennials, but Covid-19 served as the inflection point for older demographics and slow adopters. Gen X and Baby Boomers are often reluctant to change their habits, but 2020 disrupted the status quo for nearly all aspects of life. Throughout 2020, discretionary spending dropped due to a surge in unemployment rates, but e-commerce is now enjoying an all-time high thanks to its inherent convenience.
Covid-19 revealed a structural problem in our reliance on big-box retailers. At first, consumers suffered shortages of goods and frustrating checkout experiences, but big businesses responded with unprecedented agility. They quickly made improvements to overcome the new challenges of the market. Because of social distancing, many brick-and-mortar retailers were forced to go online for the first time. This was enabled by various e-commerce plug-and-play platforms that allowed small retailers or sole traders to sell online in a matter of days.
The market became a cornucopia of choice for the consumer. Millions of people who had previously resisted e-commerce – particularly for fast-moving consumer goods such as groceries – signed up with e-commerce sites. Post-pandemic, few of us have gone back to old shopping habits
- How Covid-19 has transformed the payments sector (opens in new tab)
Increased competition in the marketplace
The rapid, sustained increase in online shopping created an interesting challenge for merchants. More consumers meant higher earning potential, but it also meant more competition in the marketplace. To stand out, merchants are applying new rigor and attention to customer and user experience. Brick-and-mortar stores have largely become showrooms or click-and-collect points. Retailers have invested in connecting digital experiences to the physical using robust augmented or virtual reality and immersive experiences.
As a result of the increased quality in the market, consumers (who were already insisting on intuitive user journeys pre-pandemic) now have zero tolerance for sites that are not at least easy to use. When it comes to that all-important payment experience – the make or break moment of conversion – it’s critical to have checkout flows that feel invisible for digital natives, yet inspire trust for those late-adopters.
Local Payment Methods continue to boost ‘Glocalisation’
In 2020, Covid-19 drove consumers to look outside their immediate geography for goods and services. Major drivers of this included price point, quality of products, and availability due to global supply chain challenges. The opportunity for merchants to sell across their borders became even greater, and acted as a solution to bridge revenue gaps and increase reach to an entirely new, global audience. Now, in 2022, most large and medium-sized retailers are selling across borders.
While it’s become easy to navigate logistics around the world, collecting funds in other markets is still an entirely different story. Like all aspects of culture, payment preferences vary from country to country. Surprising to Americans and Brits is that not all e-commerce is paid for with big brand credit cards. In fact, over 70 per cent of global e-commerce is powered by over 450 local payment methods (which is why the misnomer ‘alternative’ has swapped for ‘local’ in recent years). Indeed, e-wallets like Alipay, WeChat Pay, and GrabPay dominate payments in Asia – now more than ever.
Offering local payment methods (LPMs) has always been a critical part of boosting conversion across borders. During the pandemic, as consumers clung more tightly to their money, the demand for payment methods that were familiar and trusted only increased.
The impact of Covid-19 on local payments landscape
The payment needs and preferences of global consumers still vary from country to country. In fact, they are more diverse than ever. Still, a global trend has been the accelerated shift from traditional cash and card payments toward digital payment methods at the point of sale. Out of social distancing necessity, the pandemic led to increased use of contactless, digital payment methods like mobile e-wallets, bank transfers, and QR codes. Many retailers, particularly in the US, who have long resisted installing contactless technology due to processing fees have now been compelled to offer it.
When it comes to shopping online, installment payment methods like Klarna and Afterpay have surged in use, as they enabled shoppers suffering from the economic impacts of Covid-19 to defer payments and still buy what they wanted. Before the pandemic, apps like these were primarily used by younger demographics to break up payments on big-ticket items, luxury goods, and travel. Many consumers now prefer a ‘buy now, pay later’ option.
During the pandemic, cash obviously circulated less as brick-and-mortar retailers closed or implemented digital payment methods to avoid contact. In 2022, the markets that have remained predominantly digital are markets that had low cash use before the pandemic: the US, UK, Western Europe, and large parts of Asia. Cash-based payment methods remain popular for some economies around the world (especially places in Latin America, where there are high percentages of unbanked consumers). But make no mistake: We are closer to a completely cashless society in 2022 than we have ever been.
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The value of innovation in a time of crisis
Before Covid-19, the proliferation of local payment methods was only set to increase. However, with more and more consumers turning to e-commerce as a result of the pandemic, we’ve seen an explosion of new fintechs, local payment methods and product functionalities. Local payment methods are not only integrated and easier-to-use, but they also offer a more secure option for consumers. Covid-19 encouraged businesses to provide simple solutions for people stressed by a pandemic and this helped to fuel advancements in PayTech.
Despite the coronavirus pandemic leaving lasting scars on the global economy, it’s come out stronger than before. In 2022, e-commerce continues to grow with many consumers using new ways to shop, and retailers now have greater access to larger, global audiences. At the same time, small merchants have a bigger share of the local market and are now able to compete on a larger scale.
As we look back, it’s important to recognize how the use of new technologies and digital tools has transformed the payment sector, especially during pandemic. Technology has enabled us to connect with friends and family, continue working but also helped us to access the goods and services we need.
James Booth, VP Head of Partnerships, EMEA, PPRO (opens in new tab)