How a pandemic is changing the payments landscape

- By Collaborative Media & Publishing
The coronavirus pandemic is radically reshaping the nature of money – and more change is set to come, according to industry experts.

Fears that coronavirus could remain active on bank notes has accelerated the trend away from cash as a payment mechanism. Traditional and innovative new digital payment mechanisms are gaining traction while a widespread lockdown has prompted a surge in online shopping.

BPAY Group General Manager Product, Scheme and Business Development, Keith Brown, says COVID-19 is changing many entrenched payment habits.

"Digital payments have been around a long time but there's always been a small percentage of people that preferred cash and cheques. COVID-19 has accelerated that movement to digital payments, so we'll potentially see that growth rapidly increase and become the norm."
Online spending set to grow but will it rival an in-store experience?
The coronavirus quarantine has quickly reshaped spending habits. Annual online sales lifted by 25.9% to $34 billion in 2019 according to RBA data, and that growth has accelerated as Australians, stuck at home for an extended period, turned to online shopping.

Research house Kantar surveyed 500 Australians in late-April and found that almost one-third (32%) planned to continue buying at online stores they first visited during the crisis. However, an earlier Kantar survey found almost as many people (27%) said the online shopping wasn't as good as in-store.

Grant Halverson, the Chief Executive of banking and payments firm McLean Roche Consulting, says the online sector still represents just 11.9% of the much larger $285 billion retail sales sector.

"Even if online sales double or triple they will not come close to replacing lost retail sales."

Australian Bureau of Statistics data revealed panic buying at supermarkets drove a record 8.5% monthly lift in March retail sales, driven by food and household goods, but spending on discretionary goods such as clothing and footwear fell 23%. Preliminary data then showed a 17.9% drop in retail spend during April as shoppers settled into lockdown.

While retail expenditure remains hard to predict given high unemployment, some retailers still believe the shift to online shopping is permanent and will replace some traditional bricks and mortar shops.

ASX-listed footwear company Accent Group reported digital sales lifted from an average of around $250,000 per day prior to stores closing during the lockdown in March, to between $800,000 and $1.1 million per day for the last two weeks of April. The business is now reviewing the location, size and format of its store network.

"It is clear that there has been a seismic and most likely enduring shift in consumer behaviour away from traditional shopping centres to shopping online," Accent Group CEO Daniel Agostinelli said in a recent ASX announcement.
The ongoing decline of cash may not be the end…
Australians have been shifting away from cash usage in favour of easy-to-use debit cards for many years. However, fears over transmitting coronavirus has given people another reason to embrace contactless payments.

Australian authorities have urged people to take extra precautions when handling cash while some businesses began only accepting contactless payments. In April, AusPayNet temporarily increased the PIN limit on tap-and-go transactions from $100 to $200 to reduce customers’ need to touch payment terminals.

An online survey by research house Kantar in late-April found that well over one-third (39%) of Australians had already switched to electronic payments.

RBA data also shows a sharp drop in ATM use with cash withdrawn falling by $1.66 billion in March – a decline of 15.5% or $20 billion a year – which was replaced by expenditure on cards.

"The April and May data will show how far this will go but going into lockdown certainly exacerbated the decline of ATM use," Halverson says.

A recent report by the Bank for International Settlements (COVID-19, cash, and the future of payments) found that ATM withdrawals also fell in the UK but conversely, cash in circulation rose in the US.

"In the medium term, the outbreak could in principle lead to both higher precautionary holdings of cash by consumers and a structural increase in the use of mobile, card and online payments. These developments may differ across societies, and between different consumers."
… But digital payment methods will continue to rise
About 30% of Australian bank customers were not using digital banking before COVID-19, but one in six have since become digital customers, according to a recent Boston Consulting Group survey.
The report also found high levels of satisfaction among the more than one-third of customers who have been using their mobile banking app more often and one-quarter using online banking more often through the crisis.
Consumers tend to think of certain digital payment channels, such as debit cards, as a cash replacement.

However, those payments use routes that can still require days for payments to be processed and carry limited data.

Osko is a next generation payment method built by BPAY Group as an overlay running on the real-time New Payments Platform. Unlike some new schemes, Osko sits within online banking portals and apps, which is helping drive growth.

"People are realising using something that's real time is as good as cash," Brown says. "I use it to pay my daughter when she's done some work around the house, or something like that, so I don't have to give her cash anymore."

Osko’s total volume hit a daily record of more than 1.42 million transactions valued at more than $2.03 billion on April 30.

“I think we'll see more organisations are looking at how they can utilise Osko and promote that service for different use cases – we're certainly seeing a lot of interest in the SME space."
This article represents the views and opinions of the author and do not necessarily reflect the opinions of BPAY. Published by BPAY Pty Ltd.  BPAY is offered by over 150 Financial Institutions. Contact your Financial Institution to see if it offers BPAY and to get the terms and conditions. This is general advice – before using BPAY please review the terms and conditions and consider whether BPAY is appropriate for your personal circumstances.

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