During Covid-19, payments giants like Stripe ($36 billion) and Square ($55 billion) have watched their valuations soar to dizzying heights. Smaller payments start-ups like Checkout.com, which almost tripled its valuation to $5.5 billion in June, have experienced burgeoning growth too, riding the wave of a lockdown-induced e-commerce boom.
Whilst global payment revenues are set to take a hit in 2020 – McKinsey estimates this to be about $310 billion – global lockdowns have reaffirmed the importance of easy-to-use digital payments solutions. This is why the likes of Stripe, Square and Checkout.com have done so well.
But for many other payments firms, coronavirus has marked the urgent need to pivot and reprioritise. With a 12-digit sector loss looming, costs will need to be cut and innovation investments shifted. So, what should payments firms’ post-coronavirus priority list look like? We put together some of the key trends in the industry to get firms thinking.
Strong Customer Authentication (SCA)
Whilst the UK’s Financial Conduct Authority (FCA) has delayed SCA implementation until September 2021 due to the pandemic, the European Banking Authority (EBA) has kept its 31 December 2020 deadline.
SCA requires European merchants to offer two-step verification for all digital or e-commerce purchases over €30. Dean Jordaan, Microsoft’s e-commerce and payments director, said in July that the technology giant’s challenge success rates were “low to very low” across its SCA testing. The big worry is that merchants will lose out on sales if consumers avoid purchases perceived to be too much hassle.
And with no leader showing the industry how it’s done, this end-of-year deadline seems even more daunting. “Everyone is afraid because there’s no one to look at – nobody’s done it yet,” Marius Galdikas, chief technology officer at ConnectPay, told Bobs Guide in August.
Open banking for payments
The UK’s open banking wave is approaching its next phase of implementation. Having utilised the technology as account information aggregator providers (AISPs), many firms are now looking at how they can utilise open banking as payment initiation service providers (PISPs).
UK fintech Bud launched its open banking payments solution at the end of June, offering an alternative to card payments. Because card details don’t need to be shared with third parties, the money should – in theory – arrive faster than it would through existing payment channels, which take the transaction through fee-taking firms such as Mastercard and Visa.
Incumbent banks are also starting to unveil their latest innovations around open banking. NatWest launched its new online payment service ‘Payit’ in June, designed to redirect online shoppers to their banking apps to make payments.
Contactless payments and mobile wallets
The pandemic has forced consumers globally to think about how they pay. Retailers have reported a 69% increase in contactless transactions since January, according to Forrester research. Digital wallets like Apple Pay and Google Pay have come out as top beneficiaries of this behavioural change.
Recent Deutsche Bank research shows mobile wallets are on track to trump cash’s popularity by 2025. The bank also suggests that the influx of data stored on these mobile wallets will be so invaluable that digital payment fees could drop to zero.
In emerging economies, mobile wallets are fast-forwarding countries’ digital payment transformations. Egypt, a country with nearly 100 million inhabitants in one of the world’s most unbanked regions, housed 13.5 million electronic wallet users at the end of May – growing by more than one million in just two months.
With many countries launching failed roll-outs of track and tracing apps throughout the pandemic, the issue of a uniform standard for digital identity has once again landed on governments’ agendas. A digital credential, in theory, would be able to be shared to authenticate different services and purchases, with the identity owner’s permission.
Various countries already have government-issued electronic verification solutions (eIDs), such as Germany, Italy, Spain, Afghanistan, Indonesia, and Bangladesh. But the UK and the US are still yet to offer something akin to eIDs.
A group of private and non-profit firms, including IBM, R3, Mastercard, and Accenture, came together in May to work towards adopting a standard for a decentralised digital identity exchange over the internet. In June, identity verification fintech Onfido – which raised $100 million earlier this year – announced it had successfully tested a digital ID pilot in the UK.
The rise of – and need for – partnerships
The reason why payment firms partner shouldn’t be complicated. It comes down to customer choice and convenience. Account holders have multiple preferred payment methods, depending on the transaction. So it’s up to payments firms to understand this psyche and offer optionality at each step of the payment journey.
A big part of this is through partnership integrations. Canadian e-commerce platform Shopify – whose stock price has exploded this year – partnered with buy now, pay later fintech Affirm to process its merchants’ instalment payments. Partnerships skip the tech-building step, which can often take years longer than consumers’ changing needs can wait.
Big Techs moving into payments
America’s rival Big Techs Apple and Google have hit headlines recently for their activity in the payments space. Google announced its partnerships with a host of US banks to launch its own bank accounts later this year, extending the capabilities of its Google Pay wallet.
Around the same time, Apple bought Mobeewave for a reported $100 million. The start-up’s technology could see iPhones turned into payment terminals. Last year, Mobeewave helped rival Samsung do this with a number of small businesses. As Big Techs encroach on the payments space, incumbent firms will be wary of the potential for fast, mass adoption via these technology platforms, diverting traffic away from their own.
Security and fraud
Amidst the uncertainty of coronavirus, fraudsters have taken the opportunity to pounce on vulnerable consumers. Figures published by Barclays recently showed financial frauds against UK bank customers increased by two-thirds in the first half of 2020. The 66% increase in reported scams means trust will be lower than usual amongst consumers, many of whom may have lost out on substantial amounts due to this scam influx.
Payments firms, as well as banks, will need to steer their messaging and services towards rebuilding this trust. Without it, merchants – paytechs’ main revenue drivers – will lose out on transactions, which will impact the overall payments industry. The implementation of SCA will help with this, as well as the advancement of open banking for payments.
Discover more insights from Moorwand by reading our other articles.