COVID-19's impact on payments: Five key lessons
August 19 2020
by Jordan McKee
As the broader market impact of coronavirus comes into focus, it's important for payment stakeholders to step back and reflect on the key lessons learned thus far to serve as a guide for the future. In this report, we highlight five lessons that we anticipate will leave a lasting imprint on the industry moving forward.
The 451 Take
In the words of Maya Angelou, "You can't really know where you are going until you know where you have been." This serves as prudent guidance for payments industry stakeholders as they begin to hone their go-forward strategies for Q4 and beyond. Market participants must accept that the past several months have ignited a wave of change that will forever alter the payments landscape. The adoption of new commerce and payment behaviors has accelerated, and the role and business value of payments technology has been permanently elevated. Now more than ever, agile and adaptable payments infrastructure capable of optimizing costs, revenue and processes is required to compete effectively in the future of commerce.
Five key lessons
The current commerce landscape looks radically different from the one we exited 2019 with. COVID-19 has accelerated the pace of change in the industry, bringing forth a range of new competitive requirements. Below, we discuss five key lessons that payment stakeholders should take into account as they plan for the future.
1. The digital payments market of the future is here today.
Our research suggests that usage and adoption of digital payment methods such as contactless, wallets and installments has increased dramatically so far this year. Similarly, in-store purchase volume has been deflected into card-not-present (CNP) channels at an unprecedented rate, and some of that shift will remain permanent. Consider that in one of our payments forecast scenarios, global e-commerce transaction value will increase more than 23% year-over-year in 2020. As an industry, we must prepare to address CNP volumes and payment behaviors that we did not anticipate would occur at this level for several more years. For merchants, this should lead to a proverbial reshuffling of the deck when it comes to their payment priorities and the level of emphasis they place on their payment strategies internally.
2. Payments have become mission-critical business infrastructure.
Merchants that had previously dismissed payments as a commodity service suffered deeply when shelter-in-place orders took effect. High-performing payments infrastructure is needed to accommodate the shifts in payment volume, new customer shopping demands, and changes in the fraud environment that we have observed since March. Not all payments infrastructure is created equal, and this is quickly becoming apparent to digitally empowered customers who crave speed and convenience. Legacy, siloed payment systems stand in the way of the integrated and seamless shopping experiences they desire, ultimately breeding frustration and cart abandonment. It's no surprise that 70% of merchants that are digital transformation leaders say payments are a highly strategic area of focus for their business, according to 451 Research's Customer Experience & Commerce, Merchant Study 2020.
3. Agility and adaptability are the name of the game.
If businesses have learned anything this year, it's that being agile and adaptable are critical success factors. Nowhere is this more apparent than with payments. Payments infrastructure that can easily transcend sales channels to deliver omni-channel experiences, scale up quickly to support heighted CNP volume, and effortlessly enable multiple payment options is now required to remain competitive and relevant in the eyes of customers. Merchants that were challenged to make the transitions required to serve customers effectively in recent months must reevaluate the ability of their payments infrastructure to meet their long-term business needs. Notably, this was already becoming a priority prior to the pandemic, with nearly one in three merchants citing 'modernizing payments infrastructure' as a high-importance payments initiative for their organization. We expect that this number will only increase in months ahead.
4. Every dollar matters.
In today's environment, each sales dollar and customer relationship matter even more than in years past. This should direct greater focus to the broader impact of payments within the business. Specifically, further attention must be paid to the revenue-throttling impact of false-positive transaction declines. This is a major risk factor for merchants, with one in four consumers stating that a 'transaction mistakenly declined despite having sufficient funds' would significantly influence their likelihood to stop shopping with a preferred brand or retailer, according to our Q3 2019 Connected Customer, Consumer Representative survey. As merchants look to pursue every avenue possible to secure relationships and drive growth, the occurrence of false declines must be mitigated. Execution requires a focus on payments and fraud optimization to maximize transaction success rates. More than ever, the ability to drive topline growth must be part of any payments provider or fraud-prevention vendor's value proposition.
5. Digital is default.
At the time of our Q2 2020 Connected Customer, Consumer Representative survey, three in five consumers had shifted at least some of their in-store spending online as a result of the COVID-19 outbreak. Even among baby boomers, one in two had transitioned brick-and-mortar spending online. With the recent proliferation of curbside, buy online/pickup in-store and delivery across merchant verticals, it's clear that payments will increasingly be initiated online, even if the end product or service is ultimately procured in the physical world. This should telegraph a simple message to merchants and payment stakeholders alike: Digital can no longer be treated as a secondary channel or a bolt-on to an in-store strategy. Digital experiences must be embedded into the end-to-end customer journey. Execution requires payments infrastructure that can ensure a 'single version of truth' regarding inventory, orders and customer purchase history, regardless of where the shopper chooses to transact.