Digital payments: why they are here to stay

The COVID-19 pandemic has affected every aspect of our day-to-day lives, with payments being no exception. People’s perceptions of cash handling and hygiene have radically changed, with concerns cash could potentially pose a health hazard, and this has led to a change in payment preferences across Europe.

Social distancing has also meant cash has been less frequently used, while changing methods of fulfilment, such as click and collect and curbside pick-up, have helped play a part in the rise of digital payments. As you take cash out the economy the volume of digital payments will increase.

Contactless payments have not only proved essential in the post-pandemic world, they have also been shown to be more convenient for both businesses and consumers alike. Over the past 12 months consumers have rapidly embraced digital payments within their everyday lives. Payments have become more embedded into consumers lifestyles, for example with the rise of shopping via social platforms and sending payments via messaging apps.

It is not just individuals who are adapting to the shift.

Realising the benefits of real-time payments

In the UK, the global pandemic has played a lasting role in money movement that cannot be understated. While the permanent digitisation of payments was gaining traction, COVID-19 has accelerated the trajectory. Beyond contactless, merchants are now realising the benefits of real-time payments: where 15% of retail business happens digitally today, that number is projected to increase to about 50% in the next three years. FIS’ Flavours of Fast survey showed that the UK had the most total daily real-time payments transactions at seven million per day, while across Europe, Sweden had the highest number of transactions, with 51 real-time transactions per year, per citizen.

The current pandemic has highlighted the importance of instantly getting funds in the hands of those who need it, whether individuals or businesses. As real-time payments networks mature, they are bringing value beyond speed. Real-time digital payments that can move money globally aren’t a luxury – they’re fundamental to our entire financial ecosystem. Tech giants, card companies, financial services firms and banks have partnered together to create and invest in developing the next generation of contactless and mobile payments.

In the UK, the pilot of Pay.UK.’s Request to Pay (R2P) framework in May 2020 shows progress in the payments space, with Pay.UK’s new secure messaging service providing users with improved control, flexibility and transparency of bill payments in the UK. Meanwhile, a pan-European approach to R2P is underway, with the European Payments Council having released a rule book proposing the way forward in November 2020, with the first release scheduled for June 2021. Often considered a missing piece of the puzzle to enabling innovative payment products and services that leverage real-time messaging, R2P is a key element in creating a European payments ecosystem.

Barriers to progress

Despite progress, traditional payment methods still have value in the UK. Consumers are still concerned about the security of newer payment methods, while some still do not have access to contactless-enabled cards. The Generation Pay report from Worldpay found that 45% millennials, and 43% of Gen Z (18-23 years old) and Gen X (40-54 years old) are concerned about the security of contactless payments.

It is not just individuals who are adapting to the shift. Small and medium-sized enterprises (SMEs) in the UK have been the hardest hit by the pandemic and some may lack the recourses to digitise their business and shift their operations to accommodate commerce across new channels.

Banks and fintechs need to help their customers tackle these obstacles by adopting the latest fraud technologies that will help their customers’ security concerns, while also continuing to educate to ensure customers understand both how to use the technology, and how to avoid becoming a victim of fraud. Recent research by FIS found 46% of SMEs listed investing in technology to enhance cybersecurity and fraud prevention as their top priority over the next two years.

Digital payments acceleration isn’t a passing trend

COVID-19 has led to the region accelerating the adoption of contactless payments, with cash usage falling by as much as 40% in some markets. The heightened awareness brought on by the pandemic means that many more consumers who may have never used cashless methods pre-COVID-19 have been pushed into adopting such behaviours. The question looking forward now that these consumers have seen how simple cashless methods are to use, will they return to cash post-COVID-19, or retain their new habits?

Contactless payments now look set to become the widely accepted payment option of choice in the UK over the course of the next decade, and those who adapt to the changes in payments now will be the ones who benefit in the long run.