How payments operators can adjust to coronavirus pandemic

June 08, 2020 08:35
Photo: Reuters

As the catastrophic human costs of the coronavirus come into clearer focus, so too do the consequences for people’s well-being beyond the immediate imperative to safeguard lives. Taking care of our families, friends, co-workers and communities comes first. At the same time, we all realize that the economic disruption will be profound and the short-term drop in activity for economies under lockdown will be severe.

For the payments industry, with quarterly GDP in the second quarter of 2020 possibly declining by as much as 35 to 40 percent, the sector’s financial outlook reflects that uncertainty in the short term. However, while there is no definitive answer on just how the economic crisis will affect payment economics, the industry’s stability will play an invaluable role in rebooting the global economy.

The impact on the payments sector

McKinsey’s 2019 Global Payments Report projected a global revenue growth of 6 percent for payments. However, when considering factors like current economic activity, the interest-rate landscape and associated liquidity patterns, and the evolution of individual and collective behaviour, we can expect revenue growth in global payments to turn negative. Activity could drop by as much as 11 to 14 percent of total revenues – comparable to the 10 to 11 percent revenue reduction in the wake of the global financial crisis in 2008–09.

As important as the management of the ongoing health crisis might be, getting economies up and running again as we emerge from lockdowns will help mitigate the long-term impact on people’s livelihoods.

So how can payments operators help businesses realign their efforts to ensure a return to full activity?

Supporting your customers

To ensure recovery in the most affected sectors, payments operators should reflect on how to help their customers – both to maintain essential liquidity through the crisis and to accelerate the restart of business. For example, Chinese banks have quickly set up simple e-commerce platforms for their small-merchant client base to remain alive and to restart in a more remote-commerce environment. This approach combines easy-to-use payments options and website displays, possibly connected with delivery contracts.

Due to the global pandemic, supply chains will be disrupted over the longer term because different geographies will emerge from the crisis at different times. As such, corporate payments companies are likely to continue replacing complex global supply chains with local alternatives. Local B2B players can help by deploying their merchant networks to create simplified local and regional trade mechanisms. When providing relief to vulnerable businesses, many transaction banks are temporarily waiving transaction fees and tenor-of-trade finance facilities. Similar measures for fees can be taken in retail payments as well.

Adjusting your portfolio

While the needs of customers are not expected to change drastically, new priorities can be expected – with a desire for payments companies to offer solutions that address these.

Payments companies can help governments and aid organizations reach citizens and enterprises, with a wide variety of support payments by using digital payments methods. This could be done through the form of childcare vouchers, emergency relief, or loan support.

Ensuring an easy online offer for customers is also important. Companies with the greatest online presence seem likely to suffer less from the anticipated downturn. It is no longer a real option only to provide merchants with POS offers. Players with a limited online offering may need to consider partnering with specialists, at least in the short term, to ensure an automatic online restart for customers.

As the world focuses on the health risks of the pandemic, adding identity and health to mobile-wallet functionalities should be considered. Such solutions can be used to monitor and guide usage, including enabling checkouts only for elderly customers at certain times, boosting tap-and-go checkout functions in supermarkets, or facilitating restricted shopping times to limit crowds. For retailers with the necessary setup, these wallets can also be a means of payment in stores, to avoid contact.

In addition, customers are increasingly sceptical of traditional paper currency as a result of the health risk it carries, and its use may not rebound when lockdowns end. With ATM use down significantly in many markets, providers can reconsider how machines are utilized instead of just discarding them. Underutilised ones might be repurposed for tasks (such as opening accounts, verifying identification, or delivering public documents) that would normally require face-to-face contact.

Adapting your operating models and habits

A rebooting economy may need to deal with social distancing, increased sensitivity to security, and accrued risk awareness for quite some time. Even after the end of enforced health-safety measures, companies will want to consider long-term adjustments to their operating models. Much of the economy will have learned to work effectively without physical meetings. Remote sales and virtual interactions will be the new normal, substantially reducing the importance of business travel, food, and beverages as a source of revenues and costs. Remote sales skills and channels will be paramount, as will digital solutions for things like document signing and notarization.

Widely distributed operating models and value chains will also be challenged. The asymmetric responses of governments and regulators, local shutdowns, workforce requisitions, and the lack of a coordinated regional or global political response will lead to the local relocation and reintegration of some or all critical functions.

With the increase of local operations, standard planning will shift from the short-term issues that threatened distributed operations for a period of days or weeks to long-term crisis-resistance scenarios. In particular, agile ways of working in remote or work-from-home setups will become standard. The increased use of digital tools will accelerate the adoption of future-of-work models.

Finding the next normal

As the crisis plays out, we will get more clarity about the depth and duration of the pain. One thing is clear now: there will be no return to the norms of 2019. The impact on the behaviour and expectations of customers and businesses—indeed the entire fabric of the economy—will be profound.

So it is critical not only for the payments ecosystem, but also for the economy as a whole to develop today the payments solutions that will allow economies to emerge from the current crisis efficiently and define the post-COVID-19 future.

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Partner, McKinsey & Co.