COVID-19's digital shift made shoppers more valuable, even as finances suffered

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Amid the economic and health wreckage the COVID-19 global pandemic has created, payments have stepped to the forefront in a way that has allowed banks, merchants and consumers to not only continue to do business, but also to increase communication.

It hasn't mattered which payments field or which type of business, merchant or consumer has been involved. COVID-19 has been massively widespread, and so too has the uptick in payments technology and merchant/consumer adoption.

"We need to look at payments as a lever to elevate customer experiences at this time," Jordan McKee, senior analyst with 451 Research, said Monday during the annual Mobile Payments Conference, conducted virtually this year.

A notable example, McKee said, is how the pandemic has been a catalyst for contactless payments, not only in the U.S. but across global markets.

451 Research conducted a U.S. consumer survey in early July to gauge reactions to the pandemic and their reactions to different types of payment methods unfolding.

"First, there was cash displacement, as you would see signs on store windows encouraging card payments and contactless, with some merchants not even accepting cash," McKee said as part of a panel addressing the pandemic's effect on payments.

Forty percent of the consumers said they were using cash less often since the start of the pandemic, and that spending volume was moving toward cards — specifically to contactless payments, McKee added.

User adoption rose quickly between March and July, as one in six U.S. consumers said they made their first contactless payment. "I think it was part of what consumers were coming into contact with (with less cash accepted), also a greater availability of a different number of contactless payment methods," McKee said.

The pandemic occurred at a time when far more contactless cards were already being issued, McKee noted.

"We are seeing some stickiness, as 85% of the contactless users said they would continue to use this method moving forward (beyond the pandemic)," he added. "Of existing mobile wallet users, two-thirds of them told us they were using those wallets daily now."

The trend is significant, beyond the fact that payments technology has provided an easier way for consumers to continue to obtain needed goods and services as well as those for entertainment and pleasure.

"It all matters, quite bluntly, because contactless users are more valuable," McKee said. "If you were to talk to Visa, they would tell you what they see is a 20% increase in card utilization after somebody makes their first-ever contactless purchase with a card or mobile wallet."

B2B marching toward digital

Technology is also making a difference in the B2B landscape, where digital movement of money is an option to the standard check payments to suppliers; and cross-border, real-time transactions can carry far more details about a payment through the thousands of data fields in the ISO 20022 standard attached to a payment.

There is also an increasing adoption of small businesses using P2P options and services like PayPal or Square to make payments to suppliers.

"Most of us thought the pandemic would be a month or so at the longest that we would be working from home, and what we found was buyers could not get to the office to use their check stock and suppliers could not get to their offices to actually receive checks that had been mailed to them," said Beth Horowitz Steel of Glenbrook Partners payments consulting firm.

In light of those scenarios, it has become apparent in the B2B space that this is the time to consider digital and other automations, Steel said.

Because cash flow is the lifeline of small and medium-size businesses, they have suddenly become market segments far more interested in payments technology. On average, U.S. businesses are paying bills later than ever, about 17 days overdue in March and up to 22 days in June, Steel added.

"A real moment has arisen where this increasing demand for digital automation is increasingly important," she said.

Still, checks have remained resilient in the payments chain for now, with 30% of transaction value and volume coming through checks in supplier payments, Steel added.

The advancement of payments technology is important for banks, which have also had to stress promotion and adoption of mobile banking apps and other services during the pandemic.

Moving forward

It is important to remember that consumers and businesses didn't all just change their payment habits willingly. They are still extremely concerned about COVID-19 and where things are headed in the coming months.

J.D. Power has been measuring customer experiences and interactions with their banks since late February, surveying nearly 2,000 consumers in that time period.

Not surprisingly, 90% of respondents were very or somewhat concerned about the pandemic's financial or health effects on them, with 43% acknowledging they had pre-existing conditions that made them more vulnerable.

Even more, at 91%, were concerned about a second COVID-19 wave, while 39% feel the worst is yet to come.

"But things are ticking up in terms of optimism," said Paul McAdam, senior director of regional banking in the financial services practice at J.D. Power. "Earlier in the year, more than 50% felt the worst was yet to come."

Financial institutions and payments providers should note that 30% of households said their finances have been "severely hurt," while 70% acknowledged they have put off a major purchase or life event.

"People are trying to save, to have money saved up for the difficult months that lie ahead," McAdam said.

Double-digit shifts have occurred in mobile banking users, and P2P is also enjoying a rapid increase in users, McAdam noted.

"There are some things you can do right now that you couldn't do when business was running as usual," said Thad Peterson, senior analyst with Aite Group. "When buying is slow, it is a great time to evaluate your core processes because you don't have the volume, scale and demands that usually don't allow that."

Providers and merchants alike can evaluate operations and determine what they need from third parties to potentially improve efficiencies and likely "lower costs and overhead," Peterson added.

It's also the proper time to strengthen customer relationships. "It's a time to be flexible, a time to listen," Peterson said. "We are all under duress, and it's going to be a long time doing that, so if there is an opportunity to change the rules a little bit, or bend the pricing, those things will never be forgotten."

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