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Many countries took different paths to digital payments during the coronavirus pandemic.

By Robin Arnfield Payment Source

COVID-19 has accelerated changes in payments behavior that would otherwise have taken years to occur, laying the foundation for global expansion post-pandemic. But for different parts of the world, this digital transformation had very different outcomes.

As consumers went into lockdown, payment companies mobilized to meet the explosion in demand for digital payments. Suddenly, methods such as contactless cards, wallets, instant buy-now-pay-later loans, and payment links were seen as a vital part of the payments infrastructure.

While Amazon scrambled to increase distribution centers and new online merchants sent the valuation of e-commerce platform providers such as Shopify sky-high, fintechs became a hot area of investment. For example, the valuation of Canadian processor Nuvei reached CAD$5.7 billion after its September IPO, and U.K.-based processor rose to USD$5.5 billion after raising $150 million in June.

Why it’s time for a new approach to wire processingA healthy wire processing operation is the heart of any financial institution’s commercial payments business.


“Part of what was holding digital payment methods back was consumer unwillingness to try new things,” said Lisa Grahame, chief information officer at U.K.-based Global Processing Services. “However, as digital methods have become more of a necessity than a luxury, that hesitation has been overcome, and this shift towards more convenient payments is only the beginning of greater mass adoption.”

While the migration to digital payments has been strong in cash-dominated regions such as Latin America, U.S. consumers have also embraced new payment methods.

“It’s surprising to see how far the U.S., a country that has long been behind in its adoption of payments innovation, has come in such a small amount of time,” said Jim Johnson, executive vice president and head of merchant solutions at FIS. “Just a year ago, things like digital wallets and contactless payments were novel to the average U.S. consumer; now they’re using these technologies regularly.”

Digital wallets

Digital wallets help ease new e-commerce users into online shopping by providing a safe way to store payment accounts. According to U.K.-based processor Paysafe’s August 2020 “Lost in Transaction” study, 54% of British consumers surveyed have used new forms of payments since the pandemic began, with 12% of respondents using digital wallets for the first time for online payments.

In Latin America, where there are high levels of unbanked consumers, there has been a huge rise in adoption of digital wallets for payments and for receiving remittances and emergency government aid. Using digital wallets means that consumers without bank accounts or credit cards can receive remittances or shop online without needing to handle cash or go to stores.

“We’ve seen tremendous acceleration in financial inclusion in Latin America in the last few months due to government subsidies for COVID-19 being paid to digital wallets,” said Kiki Del Valle, Mastercard’s senior vice president of digital partnerships for Latin America and the Caribbean. “This enables consumers to transfer funds via wallets such as Mercado Pago, PicPay, Movii and Nubank.”

According to Rodrigo Sánchez Prandi, vice president of product at cross-border processor dLocal, digital wallets and prepaid cards have seen the biggest increase in adoption among alternative payment methods in Latin America.

“Mercado Pago reported a Q2 processing volume increase of over 100% compared to Q2 2019, and in Brazil, PicPay’s adoption growth accelerated sixfold from the second half of March,” Sánchez Prandi said.

QR codes

Pandemic-driven demand for clean surfaces created a new use case for QR codes, leading to their adoption in Europe, Latin America and North America, whereas previously they had only been mainstream in Asia.

Like contactless payments, QR codes enable safe in-store payments, without requiring NFC readers. Because they are used with smartphones, they can incorporate other features including wallet integration and digital receipts.

“QR codes are definitely very big,” said Deloitte global payments lead Zach Aron. “When we talk to our clients, they say QR codes have gone from something that was on a roadmap for them, to something that’s really fundamental.”

Processors such as Adyen, Judopay, SafeCharge and Worldpay are providing bricks-and-mortar merchants, pubs and restaurants with technology enabling them to accept QR code payments without the need for payment terminals or e-commerce storefronts. When customers scan a QR code, they are redirected to a payment page hosted by the merchant’s processor but branded with the merchant’s name.

“We’ve seen increased use of QR code ‘pay by link’ solutions being offered to consumers to provide contactless in-person experiences,” said Brian Dammeir, Adyen’s president for North America. “Also, non-card-based wallets such as PayPal and Venmo as well as buy-now-pay-later payment methods like Affirm and Klarna are doubling down on their QR code-driven in-store efforts to offer contact-free payment options.”

Buy now, pay later

Instant buy now, pay later (BNPL) schemes have benefited in two ways from the pandemic. Customers shopping online can take advantage of installment loans offered at checkout, while in-store users can fill in their application safely at home on their smartphones.

Swedish BNPL provider Klarna saw the value of transactions made using its platform rise by 44%, to US$22 billion, in the first half of 2020. In September 2020, Klarna raised $650 million at a $10.65 billion valuation.

According to a Lendit Fintech Conference white paper, POS financing is growing 20% a year in the U.S. with similar growth rates found in Europe, Asia and Australia.

Installment lending isn’t just the domain of players such as Affirm, Klarna and Afterpay. Traditional banks as well as Visa and Mastercard are offering installment loans through partnerships with fintechs, said Shaul Weisband, CEO of POS finance provider Jifiti, which announced a partnership with Mastercard in September 2020.

“This is because fewer and fewer customers are interested in applying for new credit cards,” he said. “Instead, they are looking to use a one-time financing option for a specific purchase,”

New online payment methods

The rush to set up new e-commerce sites led to the rise in quick-to-market payment solutions such as payment links.

“Merchants needed to offer digital payment quickly without having to invest too much time or money in implementation,” said Moshe Selfin, chief technology officer at Israeli acquirer Credorax. “We saw an increase in requests to set up our PayByLink solution. Our merchants need only worry about collecting payments, not the technical and operational aspects of the process.”

When brick-and-mortar or online merchants offer payment link services, customers are emailed a link to a payment page hosted by the processor but branded with the merchant’s name. Merchants don’t handle payments and are out of scope for PCI compliance, while in-store customers benefit from not touching potentially unhygienic card readers.

Another online payment method is using social media channels for shopping. A July 2020 Visa survey of Latin American consumers found that 65% of respondents were using WhatsApp for purchases, 48% were buying on Facebook, and 36% on Instagram.

“With the pandemic, Latin American merchants and service providers came up with new ways to reach consumers, leveraging IM services and social networks to promote and sell products and services,” said Roberta Isfer, Visa’s innovation experience and content director.

P2P payments

Lockdowns and travel restrictions acted as strong motives for money transfers to go digital, both nationally and cross-border. Customers who had relied on visiting cash-accepting remittance agent locations turned to digital money transfer services due to their convenience and lower fees. The rise was also driven by the higher volume of people sending money to friends and relatives.

According to Paysafe’s U.K. consumer survey for its“Lost in Transaction” study, half of U.K. respondents had given money to family or friends since the pandemic began.

Additionally, 74% of U.K. consumers would use digital payment methods to send money abroad, either via digital wallets, direct bank transfers, or online money transfer services, it said.

The rise in digital remittances has benefited both incumbents such as MoneyGram and digital-only new entrants.

MoneyGram reported 106% year-on-year digital transaction growth in the second quarter of 2020 and a 57% year-on-year growth from the first quarter of 2020. Digital transactions accounted for 27% of all MoneyGram money transfer transactions in the second quarter of 2020, up from 18% in the first quarter of 2020.

Cross-border payments provider Thunes saw a clear shift towards remittances occurring via wallets and bank accounts in countries such as Mexico, Pakistan and the Philippines, which are traditionally dominated by cash transactions, according to Gabor Hava, vice president of global network for Thunes. Overall transaction volumes processed by Thunes doubled in the second quarter compared to the first quarter of 2020, he said.

Domestic P2P transfers also grew during the pandemic. U.S. bank-to-bank transfer network Zelle reported a 63% year-on-year increase in payment transaction volume and enrollment growth of 17% in the first half of 2020. Average transactions sent per user increased 10% year-over-year, with many consumers using Zelle to pay back neighbors for groceries or to send money to friends and family.

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