How COVID-19 Is Changing the Future of Payment Processing
At the end of 2019, news from China emerged of a new pneumonia-like virus. Despite this, the U.S. economy in January and February of 2020 was upbeat. Retail sales were strong, the SMB sector forecast a strong year, and mergers and acquisitions between financial institutions and payment technology companies were plentiful.
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Now, several months into 2020, it’s obvious that this year’s economy will be quite different than originally predicted. By the end of this past March, social distancing policies and practices began to go into effect—and within the span of just a few weeks, consumers started to change not only their personal habits, but also their shopping habits.
Industries Most Affected by COVID-19
One of the most dramatic effects of social distancing on shopping behavior was felt by the ticketing and events industry, which experienced a volume decline of 81.7% in payment transactions during March 1 through 23. In addition, with travel into and out of many countries banned, the travel industry suffered a 27.3% reduction in volume for the same period.
Restaurants and hotels have also been hard hit. Payment volume for restaurants decreased in volume by 74% from February 2 to March 26. For the same period, payment volume for hotel spending fell by 86%.
Although customers are eating out much less, they still have to eat. Thus, spending on take-out food from local restaurants is actually up by 29%. Additionally, 62% of respondents in an April 2020 survey reported an increase in their grocery store spending since COVID-19 emerged.
An Upsurge in Online Shopping
In fact, between the beginning and middle of March, average daily online grocery purchases doubled. And it’s not just grocery stores that have seen a boost in online purchases; many other e-commerce retail verticals have experienced an increase.
Although e-commerce purchases rose 25% from early to mid-March, categories with the most increases have reflected the needs (and wants) of consumers battened down at home (for example, Zoom-appropriate shirts and blouses; games and hobbies; alcohol, tobacco, and cannabis), as well as panic buying of items like toilet paper, hand sanitizer, cleaning supplies, and so forth.
Shoppers Change How They Make Purchases
It’s not just what consumers are purchasing that has changed, though; it’s also how they’re buying. In early May of this year, credit card purchases dropped by 20.1% when compared with May of 2019, while debit card purchases rose by 6.6%.
This preference for debit cards is likely a result of U.S. government stimulus checks that have been arriving in mailboxes since mid-April. Another factor is that many states now distribute unemployment benefits on debit cards to the roughly 14.7% of Americans who are now unemployed. This trend is likely to increase due to the upcoming issuance of stimulus payments on prepaid debit cards, which the Treasury Department announced in mid-May.
Potential Long-Term Impact of COVID-19
As much as we would like to return to the pre-COVID-19 way of doing business, it’s unrealistic to expect that it will happen anytime soon. The reopening of businesses in some states offers hope for an eventual return to normalcy, but it’s quite likely that COVID-19 has created a long-term change in shoppers’ buying habits.
A Pullback on Discretionary Spending
In the past 12 years, the world has experienced both this current recession and the 2008 Great Recession. The hardship caused by unemployment has put a brake on Americans’ discretionary spending.
From February to March of 2020, the personal savings rate rose from 8% to 13%. As consumers deal with financial hardships like unemployment, the number of those with credit card debt has risen from 43% to 47% since early March. Of these credit card debtors, 23% attribute their credit card debt to COVID-19.
Given the relatively short period of time between this recession and the last, many consumers will likely choose to pay down credit card debt and build a nest egg rather than spend on vacations, dining out, and luxury goods.
A Permanent Change in Online Shopping Habits
It’s likely that consumers will continue to make purchases online, even in a post-COVID-19 world. Support for this idea is found in the “phenomenon of step-change.”
Andrew Lipsman from the eMarketer market research firm described step-change as “a short-term change
in reaction to a specific event that creates a new, higher plateau for a certain behavior.” In other words, when people start doing something differently, they get used to doing it that way, and are less likely to revert back to the original behavior.
Considering the typical double-income American household, which in normal times is usually rushed and on- the-go, it does seem unlikely that having adjusted to, say, online grocery shopping and delivery, households would return to in-store grocery shopping just as they had before.
Social Distancing At Brick-and-Mortar Businesses
When consumers do get to return to sit-down restaurants and in-person shopping—and even without face masks or gloves—it’s likely that they will still have some concerns about their own health and safety. Contactless payments such as tap-to-pay cards and mobile wallets rose 40% in the first quarter of 2020, and many expect this behavior to remain in place because customers are getting used to the peace of mind it provides to them. Not only do contactless payments speed up the checkout process and reduce human interaction, they also help shoppers and employees to avoid touching germ-ridden surfaces (like cash and coins).
Optimizing Payment Processing for the New Normal And Beyond
Some businesses, such as restaurants with take-out and delivery services already in place, might have adjusted quickly to the COVID-19 reality. However, others may need to step back from their familiar, everyday practices to determine how to best serve their customers – and how to survive – in a different economic landscape.
Despite the unforeseen circumstances, modifying your business practices doesn’t necessarily mean you have to reinvent the wheel. Depending on what your customers need, you can implement various changes to your checkout process to adjust to the effects of shelter-in-place orders; social distancing; and expected long-term changes in shopping behavior.
Contactless Payments and Wireless Terminals
As mentioned earlier, the use of contactless payment methods like tap-to-pay cards and mobile wallets increased by 40% between January and March of this year— evidence that consumers are quite anxious to avoid touching surfaces unnecessarily.
Besides for contactless payments, another safe checkout option that businesses can consider implementing is wireless payment terminals. Whether it’s for curbside pickup or for in-store checkout, wireless terminals can help merchants process payments away from registers and thus reduce in-store crowding.
E-Commerce Platforms
Given that customers are likely to keep up their preference for online shopping even after COVID-19 subsides, you may want to consider shifting your product line to an e-commerce store. Whether it’s grocery items, clothing, or take-out food, businesses are sure to benefit by migrating to a system where customers order and pay online.
Thankfully, e-commerce stores are a mature concept in practice, and prior to COVID-19, the shift towards e-commerce was already well underway. Since COVID-19 has emerged, though, this trend has only intensified. In fact, 40% of survey respondents have used on-demand delivery since COVID-19 began. Another payment method, BOPIS (buy-online-pickup-in-store) jumped in popularity by 62% from February to March year-over-year.
However, e-commerce stores are not built overnight. While you take the time to get one set up, you can quickly implement other remote payment methods as a stop-gap method: virtual terminals, online payment forms, and IVR.
Virtual Terminals
A virtual terminal is web-based software that lets you start processing online payments within a matter of hours as opposed to days. Merchants or service providers simply enter in payment information from a computer or mobile device.
In addition to offering payment processing capabilities, virtual terminals often are equipped with features like transaction management, reporting, and invoicing tools.
Virtual terminals support secure storage of payment information and automate recurring payment scheduling. A virtual terminal can work particularly well for service providers who offer subscriptions or membership services, or those who accept ongoing bill payments (for example, real estate agencies, software companies, utility providers, etc.) as well as those who want to process one-time payments.
Online Payment Forms
If you need a payment processing option that is customer-facing (in a virtual way, of course), an online payment form can be customized with your business’ brand and embedded on a website page. Online payment forms are prevalent in the online world, and many customers prefer them for their privacy and security.
Online payment forms can be used to invoice clients by sending a link to the form via email or text. This customer-friendly method gives bill payers the flexibility to pay when it’s convenient for them. Online payment forms also work well for receiving donations or for fund-raising campaigns.
Interactive Voice Response (IVR)
Interactive voice response systems are automated phone lines with pre-recorded scripts that prompt the customer to enter their credit card information. IVR is another method that works well for service providers who want to give customers an easy way to pay.
Having an IVR system in place helps to reduce the workload on your staff, especially for businesses that are experiencing a high call volume due to COVID-19. Some examples of businesses that use IVR are real estate companies collecting rent payments and medical providers who regularly process co-payments.
To accept IVR payments, the business simply shares their unique call-in number via text, email, snail mail, or on a website. The line is available 24/7 to accept payments.
Where to Go From Here
Perhaps the loudest message delivered by COVID-19 to the business world is that complacency is risky. The ability to be responsive and flexible is the best armor against economic changes.
During these difficult times, Cardknox can help your organization adopt new business and payment processes. These changes will not only lead to a healthier bottom line, but also protect your customers and employees.
For more information on any of the payment solutions mentioned above, contact Cardknox. You can also give us a call at 1-855-794-7348.
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