The future of payments post-COVID-19: A shift to cashless
The onslaught of COVID-19 has affected our lives in a short period of time, and as developments unfold, it is difficult to grasp how much this global health and societal crises will impact us in the future. Analyses have emerged in an attempt to understand how the world has been and can be impacted by this crisis. We are witnessing how COVID-19 has taken a huge toll on healthcare systems and the overall global economy. Businesses are battling the virus, doing what they can to continue operations with a lower cash flow, protecting their employees, mitigating risks and finding strategies to generate revenue. Fintech companies are not an exception.
As a holding company focused on the fintech sector, we have conducted research and analysis on how this economic pullback can affect our businesses and the industry, especially in the payment sector. We believe that although times are uncertain, cashless payments will become more important in a post-COVID-19 world for two main reasons: 1) digital payments have increased since the beginning of the pandemic, and 2) governments are sending a clear message; money may carry risks of viral transmission. We believe these two factors will result in consumer behavior change that will be solidified when we return to a new normalcy.
Turning to Digital Payments in Times of Pandemic
Although recent data have shown that consumers spend less on traditional brick and mortar retail services as a result of the closure of non-essential services by many governments, online payment is booming. For example, in Italy, one of the countries hit hardest by the pandemic and who has had the longest quarantine situation so far, has seen e-commerce transactions rise by 90% in March compared to the same period last year. In China, Tencent, an internet company, experienced a 4% market cap change while Alibaba Group, an e-commerce platform, experienced a 15% market cap change since the 31st of January. In the United Kingdom, consumers have abandoned cash, with ATM and cash transactions declining by approximately 50% in just a few days. These are only a few examples showing a preference towards, or perhaps a need for digital payments at the expense of banknotes.
We believe shifting to digital payments in times of pandemic will reinforce a trend that was already growing. Before the pandemic and social distancing situation, according to a McKinsey report (2019), the global payments industry grew by more than 7.83% in 2018. In Asia-Pacific (APAC), electronic payment transactions have grown at a staggering rate upward of 15% annually; more than 2.5 times the rate of the region’s GDP growth. Compared to the Americas, Europe, and the Middle East, the APAC region continues to dominate the global payment revenue, being commercially driven.
Governments Promoting Cashless Payments
While turning to digital payments is a consumer’s choice, some governments have sent a clear message that money may carry risks in viral transmission. Whether or not there are actual risks of virus transmission through banknotes and coins (BIS, 2020), central banks are taking measures to protect citizens and promoting cashless payments in times of social distancing. For example, the U.S. Federal Reserve has repatriated dollars from Asia and put them under quarantine before putting them in recirculation. The Bank of Korea has also put cash under quarantine for two weeks. Some banks in China have disinfected money or simply destroyed banknotes to limit the spread of coronavirus. In a press release published by the Reserve Bank of India (RBI) in March 2020, the RBI encouraged citizens to turn to non-cash payments in an attempt to reduce going to crowded places for sending money and paying bills.
Digital Payments as a New Habit
Encouraged by the governments’ promotion of cashless payments, we believe consumer behavior towards online payments will become more solidified as a habit by the end of the pandemic. After the SARS-CoV outbreak in 2003, some researchers observed a shift in personal hygiene practices, close proximity behaviors, and wearing a mask in countries that have been hit hard by the virus such as Hong Kong and Singapore (Lau et al., 2003; Ostwald, 2014). Seeing the trend of digital payment slowly unfold, we can envision a similar consumer behavioral change. Consumers will likely prefer to use digital payments as opposed to cash as it is seen as a better alternative, more efficient and safer.
The COVID-19 pandemic might feel like a giant storm right now, but Omise Holdings believes infrastructures that facilitate the transfer of digital assets are more necessary than ever. Online payment gateways and fintech infrastructures, such as Omise (Payment Gateway), are key tools during and after the COVID-19 pandemic, to help businesses process payments, but also to enable consumers to maintain their daily lives while staying at home to protect themselves and one another. No matter the situation, financial infrastructures, whether they are traditional or on a blockchain, will always be important to people, businesses and society.
Research and analysis: Justin Lee, VP Corporate Development, and Roy Naquin, VP Strategic Planning
Editor: Sonia li Trottier, Communications Specialist