Crisis Manifesto: How Payments Will Evolve Post-COVID — special report by Highline Beta

Highline Beta took a deep dive into the world of payments and released a new report on innovation trends in payments — Crisis Manifesto: How Payments Will Evolve Post-COVID, featuring lessons and insights from 70+ startups and large financial institutions about global industry shifts and opportunities.

COVID-19 has massively accelerated the growth of e-commerce and created unprecedented opportunities for innovation at every level of the payment stack. From supercharging the shift from cash to digital payments to fueling innovation in mobile transactions and POS, what does the future of innovation look like in payments post-COVID-19? Here are some of the findings at a glance:

1. Consumers Abandon Cash for Contactless Payments: Unprecedented behavioural changes are now taking place among consumers around handling cash, — a heightened sensitivity World Health Organization (WHO) cautioned people to wash their hands after using banknotes and use contactless payments instead. While Americans were using cash one third of the time before COVID-19, there’s been a global consumer shift to digital payments that has now accelerated. For example, according to the new PaymentsCanada report, 62 per cent of Canadians are using less cash today and 42 per cent are avoiding shopping at places that don’t accept contactless payments. Further demonstrating this shift is that e-commerce penetration climbed to 27% from 16% in just eight weeks of quarantine in the US. What does this mean for the future of payments innovation? With more consumers shopping online and looking to spend digitally, there’s increased opportunity for companies to focus on improving Digital IDs, security, payment finality and irrevocability, data-rich payment standards and APIs.

2. SMBs Turn to Digital: SMBs, restaurants, and retailers have been hard hit by the pandemic. The sector, in particular in North America and Europe, has traditionally been more reliant on cash and paper records – up until 2019 in the UK, cash was the second most popular form of payment. But mounting consumer pressure to digitize has created an unprecedented opportunity to bring offline cash payments and the use of checks into the online/digital realm. Financial institutions and startups serving the SMB sector are addressing this need by rolling out new products and partnerships that will help businesses save on payments processing, get paid and move money faster and get better insights into cash flow and inventory management.

3. Innovation at POS and Digital Wallets: Due to COVID-19, innovation at PoS is critical. Payment terminals (also known as Point of Sale) are the immediate user experiences for consumers when they make payments. For years, many small merchants have resisted accepting electronic payments, because of high processing costs, but cost-effective options, such as mobile card readers offered by Square, Intuit, PayPal, and others, and the pressure to lower processing fees and reach new market segments and reward customers for their purchases are all converging. With Uber’s “Pay with Venmo” and Apple Watch’s “wearable wallet” soaring in popularity, we’ll see a lot of growth in this space as consumers demand more contactless payment. 

4. Social Networks as Payment Networks: In Asia, social networks have served as payment networks for consumers for while. In 2019, 92 percent of people in China’s top cities said that they use WeChat Pay or AliPay as their primary payment method. In 2019, consumers spent over $115 billion in mini apps on WeChat alone. The battle over which mobile payment form will take the market is heating up. We think introducing native money to mobile payments is next.  

5. What’s next? Native digital money: The future of payments is tied to macroeconomics and monetary policies, and one of the biggest potential disruptions could be the introduction of national cryptocurrencies gaining wide acceptance. Ultimately, the future of legal tender money is political. The potential problem with U.S. dollars as legal tender of choice for the global economy is that the Federal Reserve has been printing trillions of this money lately to stimulate the economy, and kept very low interest rates. Yet, if Europe or China introduced a crypto version of its national currency, built natively for the internet, people might find it easy to pay through apps like WeChat and the convenience of it might trump privacy concerns. This test is already underway, and represents a significant milestone for the world’s biggest central banks, potentially setting the path toward launching electronic payment systems. 

6. New Opportunities in Open Banking: We are now clearly living in a fully digital economy. In the short to medium-term, there will be a renewed emphasis on developing open banking infrastructure. Open banking and data is already helping governments around the world better respond to the pandemic and offer help to those who need it, faster. OpenBanking unlocks new ways to build products and services — and in a post-COVID world, could help customers and businesses recover and build deeper understanding of their finances. While there are still challenges to overcome when it comes to expanding API capabilities, from protocol standardization to data security, consumer demand for better services and improved access to their own data to make more informed decisions will drive the industry to adapt.  

7. Innovation Partnerships Are the Way Forward:  The great acceleration has unlocked new ways to build products and services in loyalty, gaming, data markets, cybersecurity, lending, and more. In order to take advantage of these opportunities, big banks and FIs need to behave more like startups –them as partners Corporate-startup partnerships will offer a competitive advantage by allowing corporates to tap into new technologies  and move quickly to adapt to industry change.  

The future of successful companies will rely on a willingness to embrace strategic alliances, listen to new consumer needs and act decisively in uncertain times. Please read the full Crisis Manifesto: Innovation Opportunities in Payments post-COVID report here.