30 Apr Pandemic accelerated: 5 payment trends for 2021
The past year has been incredible for the digital and payments space. Due to COVID-19 we’ve seen a significant change in the way consumers shop and handle payments.
Over half of consumers surveyed by JP Morgan last year agreed that they used digital banking tools more frequently due to the pandemic than last year.
We’ve also seen drastic changes for merchants and how they have adapted to handle the stress on their businesses during the pandemic.
Overall, the pandemic has accelerated the payments landscape for both consumers and merchants and we’ve highlighted 5 trends we think will grow over the next year and are here to stay.
1. The inevitable: digital payments
Cash? No thanks! In the last year, consumers have completely changed their attitude toward digital payments. The trend towards digital payments due to the pandemic has helped make the idea of a cashless society a near reality. We expect some countries to nearly phase out cash entirely in the next few decades.
According to ACI worldwide, reserve and pickup orders or BOPIS saw an increase of 70% in volume in the past year. And last year we saw the highest number of merchants implementing this channel into their business.
Research done by Coupon flow, suggests that nearly half of Americans avoid using cash due to risk of getting covid. A study done by CSIROscope last year showed that “COVID-19 can survive on banknotes for up to 28 days”.
Due to the obvious risk, consumers have adopted digital payments faster than before and digital wallet users are expected to grow beyond 4.4 billion by 2025 up from 2.6 billion today globally. Contactless and digital payments, here we come.
2. Peer-to-Peer, P2P transactions
Since we’re all getting more used to paying businesses digitally without cash, why not a friend?
Easy to use, real-time payments, no need for contact with notifications, sounds good to us.
Last year Venmo processed $159B in transactions, a 59% increase year-over-year.
Zelle, Venmo’s competitor, processed double that and saw 58% growth year-over-year in 2020.
Need I say more?
P2P payments are here to stay and expected to grow significantly over the next few years as consumers continue to digitize their payments and banking. Businesses are also using P2P to settle invoices, accelerating the growth in this space. With instant transactions like these comes some risk however. For more, check out our post on P2P risks.
3. Cross-border payments
Our global economy has grown so rapidly in the digital space, creating demand for more efficient and less costly cross-border transactions.
Brands who operate with an ecommerce/digital first mindset do not market to the country in which they were founded, they market globally. These businesses especially need cross-border payment solutions that are efficient and inexpensive.
Travel has greatly impacted cross-border transactions. Effectively causing both Visa and Mastercard to see declines of up to one third or 36% in Q3 2020 compared to 2019.
In addition to ecommerce driving cross-border transactions, we expect a huge uptick when borders open up over the next year as soon as a significant portion of the global population is vaccinated.
In fintec, there has also been a lot of innovation in the cross-border transaction space. Modern-payment tools can simplify the way businesses collect and make payment across borders. They also effectively reduce costs compared to cheques, wire transfers, or significant foreign transaction fees that are unexpected. If businesses take advantage of tools that can help mitigate their foreign transaction costs they are sure to see success.
4. Ecomm fraud
With all of the growth in digital payments adoption globally and online banking comes the opportunity for fraud. A new study released by Juniper Research is expecting ecommerce fraud to grow by 18% in 2021.
The main factors that will contribute to this are increases in online shopping and the lack of fraud mitigation by merchants as they adapt to the demand of online business.
At the same time, consumers will need to get more savvy moving forward, and merchants will need to implement better fraud prevention strategies in their digital ecosystems.
5. Buy-Now-Pay-Later (BNPL)
BNPL allows consumers to purchase what they need or want over time. The pandemic accelerated this significantly as many people struggled with reduced or no income as countries locked down and shut businesses to slow the spread of COVID-19.
Millennials especially have helped grow the BNPL category. The recent PYMNTS study: “How We Pay 2021” found Afterpay to be “the most popular among millennials who are on firm financial footing”.
According to Payments Dive, nearly 36% of US online adults are interested in, currently use, or have used a “buy now, pay later” service for a large purchase”.
Merchants have adopted BNPL to service consumers who prefer to use this payment method, opening up their business to a wider audience.
According to Forrester, 26% of the 100 US retailers surveyed offered BNPL options in January. By the end of the year, that number rose to 46% – nearly doubling the growth in a year.