The 2020s: how the way we pay will change forever

Undeniably, 2020 was a big year for payments. Despite, or rather because of the past 12 months, the way we pay for everything from food shopping to clothes and essentials has changed significantly. The drive to halt the spread of the virus has seen the volume of digital payments increase exponentially. With 80% of consumers reporting they have made more contactless payments than ever, and nearly a quarter (24%) of these consumers making more use of their mobile wallets.

Consumers started to move from contactless to contact-free in 2020.

In the midst of another national lockdown in the UK (currently underway in January at the time of writing), and more on the horizon across Europe, it’s clear the move to contactless and contact-free is well and truly underway. But looking further than the next 12 months, 2020 set in motion a number of other payments trends that we will likely see come to fruition by the end of the decade

Contact-free will replace contactless

Consumers started to move from contactless to contact-free in 2020. Eschewing physical form factors such as cash and plastic in favour of mobile-based payments when allowed out and about, and opting to shop online from the comfort and safety of their home wherever possible during the first, strictest lockdown.

With Strong Customer Authentication (SCA) now in place across Europe, and mandated for the UK by 14 September 2021, we will start to see even more consumers become at ease with using their mobiles while making payments. Under SCA, consumers are required to authenticate themselves via codes sent as text messages, extending the consumer/mobile bond into a myriad of purchasing experiences, paving the way for enhanced customer experiences with user friendly biometrics offered through bank and mobile wallet providers, thus replacing the text message stepping stone.

While text message codes are a definite step in the right direction, this extra layer of friction could at first seem clunky to some. Though to others, having some security friction will be most welcome amidst increasing financial crime. This confrontation between convenience and security is age-old in payments, and banks should move to iron out the kinks in their customer journeys to enable faster adoption. A key example here is Request 2 Pay (R2P), launching across Europe now, ushering in contact-free payments which we will see become the norm by the end of the decade.

Real-time payments will become standard

The events of 2020 shone a light on how having instant payments and access to cash is no longer a nice to have, but a necessity. While banks have been investing heavily in access to real-time payment rails across Europe for a number of years, the critical task for this decade will be how they embed instant payments into the consumer journey.

A key driving force behind answering this question is the bank-led European Payments Initiative (EPI). EPI will introduce a new card that will enable physical point of sale purchases (still seen by some markets to be the prize target), settling funds over the instant payment rails. In addition, EPI will also provide digital wallet capabilities, expected to leverage Request 2 Pay, and underpinned by the same instant payment rails. These wallet capabilities will be implemented to enable European digital wallet providers, such as Bizum in Spain, to offer payments with a standard set of European rules to govern the EPI consumer payments ecosystem.

As such, real-time payments is moving away from being about just the connection. When augmented with modern digital capabilities, real-time instead is looking to what value can be added to the consumer payments journey that enriches the experience, changes payment habits, and helps keep a customer, or snag them from a competitor. While there will likely be a hype curve towards the end of 2021, in the next three to five years we will see full adoption start to manifest with real-time payments in use across most, if not all, consumer payments use cases.

European banks will get into bed with Big Tech

There’s been a big increase in payments activity across GAFA (Google, Apple, Facebook, Amazon), over the last few years. Already live in India at huge and growing volume rates riding the real-time rails, through partnering with Plaid in the US, Google Pay has taken their India success to launch a new mobile-wallet which acts as a pseudo bank account. As well as offering direct connection to bank accounts accessed through Plaid’s APIs.

In comparison, WhatsApp Pay, also now live on real-time in India, launched in Brazil last year on a cards rail, but was stopped by the central bank. With Brazil’s real-time scheme PIX now live, the central bank publicly acknowledged the need to get WhatsApp Pay up and running with PIX, thus catapulting the new real-time scheme into ubiquity and largescale usage. Dramatically reducing card transactions and non-domestic revenues as a result.

Apple and Amazon are also increasingly playing a role in real-time and digital. Apple Pay has a universally acknowledged acceptance mark, and although constrained to only cards today, following the Google route seems likely with “PayByBank” capability increasing in demand. As for Amazon, with an increasingly accepted Amazon Pay brand for e-commerce, alternative credit, one-click functionality, and already being live in India with UPI real-time payments, broadening into new markets seems quite likely.

But Big Tech is not restricted to GAFA alone. A lot of markets are also seeing their growing Big Techs leveraging and expanding in this space. Grab Pay, for example, in Singapore started off as a taxi hailing app, then expanded its service to include a very well penetrated digital wallet, and experiences in other verticals such as ticketing, and hotels. Another such example is Paytm in India, in the top ten global unicorn list, which started its life as bill payment only service, before offering wallet capability.

The onset of Big Tech into the payments space brings a natural friction with consumer payments providers into the landscape. With more and more consumers choosing to manage their finances through the likes of Apple Pay, will we see a swing to Big Tech for payments in Europe, or will the EU ecosystem adopt its own digital wallet habits, driven by EPI?

In Europe at least, the likelihood is that banks will collaborate with Big Tech, at least for a while. Banks will get instant access to a mass pool of consumers through WhatsApp and Facebook channels, which both sides desperately want to serve. This not only opens up consumer acquisition possibilities with fast mover banks stealing customers from other banks, but also makes banking and payments services really easy to use – keeping existing customers happy. For Big Tech, the benefits of working with banks, not against them, are founded in behavioural economics. Access to payments data enables them to build an even more complete picture of an individual consumer, increasing customer stickiness, whilst driving up marketing data revenues.

Undeniably, 2020 accelerated many of the trends that were already starting to emerge in the payments landscape.  And while contact-free and instant payments will not become ubiquitous overnight, by the end of the 20s they will be the norm. Stay tuned for a super exciting decade.