The global shift towards digital payments have increased over the last years, COVID-19 pandemic is definitely accelerating digital payments and the structure of the industry. Luxembourg for Finance suggests that the changes as the result of this pandemic is pushing what were powerful disruptors such as credit and debit cards, to become disrupted.
This intensifies by the newer solution which is digital wallets, it gains traction globally especially for the younger demographic. COVID-19 pandemic will strengthen the shift from card payments to digital payment both in-store and online. Younger consumers born after 1998, who have grown up with internet and digital tech prefer to use digital payments than traditional card or cash.
The regulations established during COVID-19 pandemic such as social distancing might stay with the world for years even after the cure is found. People with no access to digital payments will miss out on tools to ensure that they obey the regulations during an outbreak but also the advantage of financial inclusion, it suggests that there is more to digitized world trade beyond COVID-19.
Nations around the globe are taking cautious measures to protect its citizens against Coronavirus outbreak. Authorities are dealing with short-term and long-term effects on COVID-19 impacts such as mass unemployment and societal disruptions due to economical instability as the lockdown regulations are established to limit the transmission of the virus. These issues are extremely hard especially for the people in developing countries, having little or even no financial reserves to fall back on. Thus, in response to the issues, countries are extending their societal assistance program, thanks to World Bank and Ugo Gentilini, the program is now available in 106 countries, it mainly works on societal supports such as payments for most vulnerable areas, actions in social insurance such as unemployment benefit, and job training programs. Cash transfers are mostly used in societal assistance programs by the government, this significantly increases G2P (Government to people) payments.
The initial challenge is to make G2P transfers efficiently and at scale, how do we use the technology to do so? This can be solved by using digital payments to cover every single individual who needs the support. The next challenge is many of the poor don't own any financial accounts. One of the countries has implemented an ID system, India has been giving every citizen a unique biometrically-verifiable ID number. This digital identification system has helped to identify and enrol India’s citizens into the G2P program. Indian government developed a dynamic database using the new Socio Economic Caste Census, which has the benefit of being paperless, obligatory, and based on objective poverty-ranking criteria such as ownership of specific assets, this allows accurate targeting. 106.9 million out of 243.9 million households are identified as underprivileged.
The information is then linked to a national identity system called Aadhaar to accurately identify the beneficiary; it’s a 12-digit unique identification number as mentioned above, for all citizens that captures demographic and biometric data that can be used all over the country as a proof of identity. So far, more than 1,000,000,000 Aadhaar cards have been issued which covered 95% of the adult population in India. The Indian government is one example of a successful program for a low income level population to be able to access formal financial services.
Faced with lockdown regulations forced the stores to close down, encouraging consumers to find other alternatives to access daily needs of goods and services. A recent report stated that double-digit consumers were buying more digitally and some of the consumers are practicing online shopping for the first time. The share of global retail sales is increasing, suggested to reach one-third by 2024.
Consumer behaviour is changing drastically as a result of COVID-19 outbreak, nearly 50% of global population are using digital payments during the pandemic, and the prediction is this will continue even after the virus is contained. E-wallet is ranked top benefiting from this change, as consumers use less cash and shifting to online shopping. Digital payments allow people to access goods and services needed even during quarantine, it reduces physical contacts and is considered as a safer way to do transactions. During pandemic, digital payment is not an option, it acts rather as the main tool to keep the economies running.
Grocery online shopping has soared as the result of consumers who are not able to buy the products in local grocery stores, many daily necessities are not in stock due to massive panic buying in most of the places across the globe. With advanced technologies, many people who have done grocery shopping digitally realised that it’s much more simple and convenient for them to purchase groceries online.
The digital payments such as Contactless Payments, Facial Recognition, Quick Response (QR), and Near-Field Communication (NFC), are able to minimize spreading of the virus through cash exchange. Digital payments have helped businesses ranging from small to large to keep revenue flowing during uncertain times. It also helps to put stimulus funds into customers' hands more rapidly. For instance, Chinese government issued vouchers through WeChat Pay to enhance immediate spending. In 2019, nonbank online payment platforms processed nearly $35 trillion USD in China. Transforming from cash utilization to the modern digital payment system took coordination between various stakeholders including fintech entrepreneurs. Banks and governments have to focus on building crucial infrastructure in the areas of identity, legacy payment system, and internet access, while also encouraging domestic digital payments and commerce.
The demand for digital platforms and technology that allows businesses and consumers to connect is predicted to continue to rise. The recent pandemic revealed the fact that moving to the digitalized era is a way to survive hard times, this soon will be the main crucial factor for businesses to operate. Digitization of payment affects both parties, Businesses who don’t provide digital payments are losing out as remote purchasing is increasing, consumers without online accounts are required to queue to access goods and services which is bad as there’s a greater risk of exposure to the virus.
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