Nick Corrigan, UK & Ireland Managing Director, President of Global Payments.
As 2020 began, there was already much conversation about the pace of change in the payments space. Driven by regulation changes and enabled by advances in technology; new players and established organisations were able to broaden out their proposition with things like Open Banking. But the Covid-19 pandemic has catalysed change and innovation at an unforeseen pace, out of pure necessity. With customers no longer frequenting physical stores, reluctant to handle cash and relying heavily on online services to feed, clothe and entertain themselves, the payments industry has had to adapt quickly. The question is, which of these changes are here to stay, and what trends will dominate the conversation in 2021?
Brands go direct-to-consumer
It goes without saying that the pandemic has forced us to re-evaluate our relationship with physical stores, irreversibly changing how we view them. Good examples include Nike, Brewdog and Harry’s, whilst Shopify has seen dramatic success in the small merchants needing to go online. This year, we’re going to see an increase in the ‘direct-to-consumer’ play. Brands big and small who previously had a distinct distribution channel e.g. through supermarkets, multi brand outlets or dedicated stores for example, will look more deeply at their distribution models and use technology as the enabler for this. As part of this, they will ramp up efforts around their social presence and communication, apps, loyalty programmes and websites. They will embed the payment process, making it almost impossible for consumers to want to visit a third-party physical store.
This will in turn fuel the subscription economy and we’ll see consumers increasingly harnessing the opportunities there now are to have things like razors or fitness juices delivered to their doors monthly via an app, as opposed to shopping for them in a supermarket. This movement of reclaiming direct consumer interactions and cutting out distribution partners presents massive opportunities for brands. They will now have the data – and the resulting insights – gained from controlling more of the payment flow to strengthen relationships, and in turn, strengthen their revenue.
Tech players ramp up payments prowess
In 2021, we’re going to see tech giants continue to increase their efforts when it comes to payments and broader financial services. Amazon Pay, for example, is fast becoming a standard payment method for purchases outside of its own website. While at the moment it is mostly limited to Amazon storing your card details to enable one-click payments, we’ll begin to see tech giants start to come up with their own payments products so that they can control the complete flow of the payment. The natural next step from consumers using the platform merely to access their card, is that they might have a credit line with the platform in question and offerings beyond buy now pay later as the tech firms disintermediate the traditional financial services supply chain.
Open Banking gains pace
Most consumers are still unaware of this new service, but as more merchants have an opportunity to offer this solution and integrate into their payment options, they have a great opportunity to reduce their costs for payments by not using the traditional routes under Visa and Mastercard. While these entrenched payments rails have a very important place, offering protection for bigger purchases like a TV or a holiday, they aren’t needed for many consumer purchases. It’s unlikely you’re going to seek a refund and have to have a chargeback raised for a cup of coffee or an insurance renewal, which is what these big networks are so vital for facilitating.
When you take these types of credit and debit card purchases, about 30% of them could sit outside of the typical network ecosystem. This is why we’re seeing banks quickly launch their Open Banking services, specifically for these types of scenarios. In 2021, Open Banking is really going to start doing what it was intended to do: increase competition.
Looking ahead
The way we pay was already evolving due to Open Banking, BigTech and the explosion of ecommerce. But adapting to the pandemic meant rapidly adapting to new technologies, and nobody is likely to look back. The economic impact of 2020 means that budgets and purse strings will be tighter in 2021, and companies will be looking to find ways to make their payments infrastructure cheaper without compromising security. The promise of new opportunities to monetise data will also bring in new players and new technologies as businesses seek to own more of their payment lifecycle. This had been a year of intense change, and 2021 shows no promise of slowing down.
