The trends that defined 2020, and opportunities in 2021
How the last 12 months have changed the payments landscape, and what that means for the upcoming year.
My heart goes out to all that have been impacted by the pandemic, health-wise, on a financial level, or due to social isolation. COVID-19 has also had the perverse effect of increasing differences and inequalities, including tech giants’ profits surging in stark contrast to many small businesses closing their doors for good, or having to deal with significantly reduced turnover.
There are many social consequences of COVID-19 and underlying inequality as well. One example of this is the rising gap in school performance between haves and have nots, with a recent study showing 30% of kids are at risk of failing vs. the historical average of 10%. It is not hard to understand the hardship of remote students living in crammed/noisy quarters with poor internet access and parents often more concerned with subsistence than education.
Thankfully, the pandemic has also resulted for many in a time of self-discovery and personal growth, with people taking online courses for work skills, hobbies, languages, contemplating career moves, exercising more, trying to eat better/cooking their own meals, as a way to make up for all the stress and anxiety.
In this context, digital payments and fintech play a big role in enabling commerce and the delivery of services, hopefully alleviating some of the issues above for both consumers and small businesses. In KBW’s words: “fintech is 21st century finance, not a type of company or subsector of financials.”
From our industry’s perspective, we have seen an incredible acceleration of digital transformation in 2020 in areas including:
- The acceleration of eCommerce
- Growth of local and alternative payment methods
- A surge in contactless payments adoption
- The proliferation of omnichannel payments
- Continued industry consolidation
The defining trends of 2020
McKinsey calls it the quickening: US eCommerce grew ten years in three months, rising from 15% to over 30% of all commerce. Certainly we will see this spike subside a little once COVID-19 is no longer a factor in our lives, but much of it will stay, as confirmed by Paysafe research, in which 38% of consumers, globally, said they will continue do more online transactions, post pandemic.
Local and alternative payments have also become even more relevant, with 56% of global consumers mentioning that they used a new alternative payment method in the first month of the pandemic, according to Paysafe’s LiT research.
The explosion in the use of contactless has been undeniable, and nowhere has this been more evident than in the US, which, unlike UK/EU, Canada and Australia, was behind in NFC-enabled card and POS market penetration. Moreover, the emerging “contactfree” trend is one where there is no cashier at the store, such as in Amazon Go. It is early days, but there appears to be increased appetite for it, given the current social distancing considerations.
The push for online and mobile commerce also highlights the importance of omnichannel: providing consumers with a seamless and enjoyable experience, regardless of whether they purchase in-store or remotely. This also requires merchants to have an integrated back office so that, for example, consumers can do in-store returns for online purchases, or use the same in-file tokenized cards for purchases, regardless of channel.
Lastly, we have continued to see consolidation in the digital payments space, with ongoing M&A activity, particularly in Europe, in the last few months.
What is coming next in 2021?
Looking ahead to 2021, here are five trends that are worth keeping an eye on:
- Crypto coming of age
- Banking as a service
- Super-apps: payments, credit, insurance, investment
- Growing influence of AI/ML
- Digital identity
Crypto seems to be coming of age. In a recent Pantera Capital note, the analyst pointed out that Bitcoin has generated a community of 100 million active users in only 12 years. Soon hundreds of millions more consumers will be able to buy and use cryptocurrencies via financial apps they are already familiar with. It feels like a firm step towards expanding crypto’s scope beyond speculation to, potentially, investment, asset protection, and eCommerce use cases.
Banking as a service (BaaS) is powering a new cohort of fintech service providers, but more importantly, it is being adopted by some of the world’s largest tech companies, notably Google with its Plex announcement and Apple with its card. The combination of powerful technology and lower cost base is certain to enable companies to serve the underserved and expand financial inclusion. BaaS leverages Open Banking, but it is much more: a complete platform for end-to-end banking services, including technology, as well as licensing and compliance. To put it into perspective, BaaS is to banking what cloud services are to Dev/IT.
Despite the fact that AliPay’s planned IPO was suspended, its 674-page prospectus lays out the blueprint of an impressive strategy, based on four pillars of growth:
- Digital Payments
This ranges from the full gamut of e-wallet services to B2C, P2P, B2B, domestic and cross-border payments, linked debit and credit cards, QR code, in-app, web payments and smart POS terminals
Serving consumers’ and SMBs’ unsecured credit needs. AliPay has developed their own credit scoring service.
Including features like instant redemption of investments and AI-powered customized recommendations (i.e. advisory services)
Affordable, easy-to-understand and user-friendly insurance products (à la Lemonade)
It’d be easy to dismiss this vision as something that is only applicable to Asian markets, but in Europe and North America, we are also seeing a remarkable convergence as players rebundle their services and start looking more and more like each other, regardless of whether it is a digital wallet adding crypto, remittances and stock trading; a wealth management company adding crypto, lending and bank accounts; a crypto wallet adding stock trading; or a neobank adding insurance, stock trading and lending. It appears everyone wants to be THE MONEY APP (or super-app) for all consumers.
And this brings us to the growing role of AI/ML, as this vision must be underpinned by a solid technological infrastructure, including intelligent decisioning systems, dynamic risk management and compliance, mass customization (feeds, recommendations, offers, recognition) as well as massive, cloud-based computing power.
Digital identity is an area that has be crying for disruption. The current systems, where consumer data is stored in multiple places, exposes companies to the risks of breaches. Instead, a coalition or federated system could be faster, cheaper and almost impervious to breaches, as no single location or repository would contain all the data sought by the fraudsters, making it extremely hard for them to get any use from stolen data.
In summary, lots of great opportunities to innovate and grow in 2021. And, as an added bonus, The Harris Poll believes that there are $2 trillion sitting on the sidelines, waiting to be spent as the health crisis eases … 53% of consumers miss sports, 51% miss movie theaters, 44% miss flying. When the “savings dam” breaks, there will likely be lots of revenge/splurge spend.
Circling back to my opening paragraph, I trust that, as an industry, we will also be able to help both struggling SMB and the underprivileged better cope with the challenges brought about by the pandemic. After all, our success will be meaningless if it is not accompanied by that of the communities in which we live.