COVID-19 Impact on Payments – The Immediate Effect on ......Brazil, Sweden, Ethiopia • Decline...

©2020 Aite Group LLC.

COVID-19 Impact on Payments – The Immediate Effect on Commerce and Near-Term Expectations

Thad PetersonSenior Analyst

Marcell KingChief Innovation OfficerPayveris

April| 2020

Sponsored by

TRUSTED BY 250+ FI CLIENTS

PARTNER NETWORK

INDUSTRY PARTICIPATION

INDUSTRY AWARDS

2018 Best in Show

2019 Best in Show(Backbase Collaboration)

Intelligent Digital Payments…Made Simple.

THE MOVEMONEYSM

PLATFORM

Simplify

Control

Extend

OPEN API | CLOUD BASED | DIGITAL PAYMENTS AND MONEY MOVEMENT HUB


AGENDA

• Where we came from

• Where we are

• Where we’re going

• What to do


Context

• While there have been other events that have impacted society in the past few years, like the U.S. government’s partial shutdown in 2018-19, the great recession and 9/11

• There has been nothing this extensive in our lifetime.

• This is a true black swan, something new and unexpected that disrupts the ecosystem

Where We Came From1

Where We Came From


The Good News – We started in a very good place

• Global economy was strong• U.S. Unemployment was at record lows• Consumer spending was solid• Consumer confidence was high• Retail sales were solid and climbing

Source: NRF Monthly Economic Review, April 2020

Consumer Spending and Consumer Confidence

Government Shutdown

U.S. Unemployment Rate

Source: U.S. Bureau of Labor Statistics Source: NRF Monthly Economic Review, April 2020

U.S. Retail Sales


More good news – banks were strong and digital tools were in place

• U.S. banks were strong• Problem banks fell to the lowest level since before

the financial crisis• Digital and mobile banking usage is strong

with bank customers• Proximity mobile payments usage is growing

Where We Are2


Then March Happened

• Services business collapsed

• Necessary retail grew somewhat

• 1 in 4 merchants are closed in the U.S.

Source: FacteusSource: CardFlight


The retail ecosystem is morphing to adjust to the virus

• Beginning March 20th, The New York Hilton Midtown, the largest hotel in New York city closed indefinitely

• The QSR vertical has not experienced the same degree of negative impact other verticals have

• Hardware and home improvement store sales have increased and will continue until the threat dissipates

• Rite Aid said online sales have increased “10 times normal demand levels” due to COVID-19

Source: The Strawhacker Group


The damage• Global markets down

• Unemployment explodes • Could reach 32% in U.S. (St. Louis

Fed)

• Precipitous drop in GDP

Source: Seeking Alpha

Source: New York Federal Reserve


Impact on the payments ecosystem

• McKinsey is forecasting a 8-10% decline in revenue in the payments industry for 2020

• Seventy-three percent of U.S. adults say they would be more or much more likely to use digital payments or digital banking services during a time of social distancing (Harris Poll, March 23-24)

• Real-time payments are becoming increasingly important as consumers and business struggle with cash flow

Source: McKinsey


Revised Contactless Transaction Limits

Contactless POS, Mobile and Online Payment

• Contactless transactions appear to be increasing• Limits being raised in most major markets

• U.S. NFC acceptance is increasing with increased POS accessibility• ~ 57% of U.S. retail terminals are now NFC

enabled• Mobile wallet usage could increase with

the increased interest in contactless• Card-present transactions are down

49.4% with U.S. small business• But card-not-present transactions are

only down 15.2%

Source: NFC World


Total Digital Transactions Y/Y (Bill Pay, P2P, A2A/External)


Total Digital Transactions by Type Y/Y

Where we’re going2.


Recovery will be staged

• Neilson describes four thresholds in the transition back to the ‘new normal’• Pantry preparation• Quarantine living preparation• Restricted living• Living a new normal

• Most of the world is in quarantine

• A few nations are just beginning to get to the final stage

Source: The Neilson Company


Impact on commerce by stagePandemic stage Example Nations (4/1) Impact on Commerce

Pantry Preparation Belarus • Spike in groceries/drug stores• Stable commerce for other retail/services

Quarantine Living Preparation Brazil, Sweden, Ethiopia • Decline in unnecessary purchases• Dramatic increase in virus related purchases

Restricted Living U.S., Australia, Russia • Collapse of travel, hospitality and entertainment services

• Stable volumes for necessities (grocery, drug, home repair/improvement)

• QSR volumes stay viable• Rapid growth of e-commerce/delivery services

“New Normal” China • Continued digital volume increases• Slow return to physical retail• Recovery variable by category (Up-restaurants

and service businesses, bars/Down-theaters and conferences)


Impact on payments by stagePandemic stage Example Nations (4/1) Impact on PaymentsPantry Preparation Belarus • Some downturn in transaction volume

• Increases in grocery/drug volume• Higher average transaction value

Quarantine Living Preparation

Brazil, Sweden, Ethiopia • Increase in digital commerce• Decline in discretionary categories• Higher average transaction value

Restricted Living U.S., Australia, Russia • Overall decline in transaction volume• Significant closures • Migration to digital• Increase in CNP fraud

“New Normal” China • Fewer merchants + high unemployment = fewer transactions• Decrease in cash payments, more contactless and mobile• Increase in contactless transactions• Gradual increase in physical world POS• Digital transactions continue to increase as a percentage of

total volume • Increase in remittances from “new normal” markets to

restricted living markets

What To DoT

2.


Beware the ‘unknown unknowns”

• Remember this is a black swan, no one has been through this before• Developing world now starting to quarantine

• Potential for significant economic/political disruption in the developing world• Supply chains are disrupted

• Potential for nationalism and protectionism driving supply• Potential relapse possible in some markets

• Hong Kong recently experienced a relapse• Recovery may be slower than expected

• Longer term economic damage• Potential for a major, long-term economic dislocation


Thoughts on payments for banks in the ‘new normal’• Promote functions that can be done easily and securely through digital and automated channels:

• Remote check cashing/deposit, person-to-person or intrabank transfers, and video chat with a banker all create value in this crisis.

• FIs should also share up-to-date information with their customers regarding branch closures and resource availability.

• Ensure that products and communications for digital and automated offerings are effective with all demographics from Gen-Z to boomers

• Increase remote deposit, ATM, and card transaction thresholds:• Allow customers to make more or larger deposits to or withdrawals from their accounts

• Consider fee waivers, delaying due dates for payments, and providing additional financial education or counseling

• Raise the dollar limits for contactless payments: Issuers that already issue contactless cards or support mobile wallet types may consider promoting these options as ways to stay safe during this pandemic

• Accelerate contactless payments initiatives: Issuers that do not yet issue contactless cards or support all mobile wallet types may want to accelerate those initiatives to support increased consumer demand for these options

• Assess in-house and vendor capabilities to identify borrowers at risk of becoming delinquent• Determine what types of mitigation strategies to deploy under varying scenarios

• FIs should also determine how best to provide offers to customers with immediate credit needs


What to do

• Stay in close contact with customers (transacting or not)

• Crises are where relationships are made or broken

• Prioritize customer communications and inbound customer service

• Minimize friction wherever it is• Accelerate digital and contactless

transformation• Increase limits for contactless transactions

• Plan for a long, slow recovery• Even if it is a rapid (“V-shaped”) recovery,

there will be major segments that will be damaged for an extended period (e.g. cinemas)

• Expect setbacks• Potential relapse in the fall or next year• Long term unemployment risk

Source: Payment Source


About Aite GroupAite Group delivers research and guidance to leading institutions and technology providers across the global financial services industry. With expertise in banking, payments, insurance, wealth management, and the capital markets, we guide financial institutions, technology providers, and consulting firms worldwide. We are dedicated to helping our clients make smarter decisions, faster, to strengthen and grow their business.

About PayverisPayveris is the creator of The MoveMoneySM

Platform, an Open API cloud-based platform that enables financial institutions to control, simplify + extend digital money movement capabilities to any application or device while lowering user experience friction, significantly reducing operating costs + future-proofing the IT investment. The enterprise platform supports a wide range of money transfer capabilities including consumer and business bill payment, P2P payments, A2A/External Transfers, eBillpresentment, loan payments, and B2C disbursements.

COVID-19 Impact on Payments – The Immediate Effect on ......Brazil, Sweden, Ethiopia • Decline...

Documents

Transcript of COVID-19 Impact on Payments – The Immediate Effect on ......Brazil, Sweden, Ethiopia • Decline...