How CX is driving the future of payments
Before COVID-19, consumers didn’t think twice about pulling out a credit card or cash to make a purchase. Typing in a PIN on a payment terminal? A breeze. Exchanging a couple dollars for a cup of coffee or a corner store snack? No problem. We were all accustomed to living in a mixed-payment world.
Now with hygiene and consumer safety front and center for all, brands are embracing cashless, contactless and other digital payment forms to meet the needs of evolving consumer behaviors.
“The pandemic clearly sped up the adoption of contactless payment methods and e-commerce,” says Jared Drieling, senior director of consulting and marketing intelligence at The Strawhecker Group, a consulting firm focused on the electronic payments industry.
Let’s take a closer look.
Digital payment adoption speeds up
While many of the factors fueling the increased popularity of electronic payments, such as online shopping, existed pre-pandemic, COVID-19 was undoubtedly a major factor in speeding up its adoption because of the fear of catching the virus from contaminated surfaces.
Many retailers stopped taking cash, not just for their own safety, but also because many consumers didn’t want to touch anything that might be contaminated. One poll of MasterCard users, for example, found that 82% of those surveyed believed contactless payments to be cleaner than cash and therefore less likely to carry the virus.
The pandemic didn’t necessarily force the invention of new payment technologies, but it did increase demand, says Drieling.
“Most merchants have been forced to offer contactless options or set up an e-commerce storefront to simply survive and accommodate their customers. Merchants had to rely on contactless options in order to attract consumers and shoppers back to their storefront, since there were a lot of indicators from consumers around their lack of cash usage due to COVID concerns,” he explains.
Going forward, many in the industry expect digital payments to become even more widespread.
In some countries, such as Canada and the U.K., where tap-to-pay — a payment method that uses NFC radio frequency chips inside of credit and debit cards — is quite prevalent, the societal switch to digital wallets has been slower as consumers trusted more familiar forms of payment. But in the U.S., where merchants were slower to accept tap (and consumers were slow to adopt it as a consequence), digital wallets are gaining ground, according to market research company eMarketer. It predicts that by 2023, around 80.1 million people in the U.S. (up from 69.4 million currently) will regularly use their smartphones as a form of payment.
Consumers discover the convenience of cashless transactions
Convenience and the seamlessness of payment experiences are two top reasons why shoppers like using digital payments, and those two factors are critical to the delivery of customer experience (CX). According to PwC’s “Experience Is Everything” report, CX plays a role in nearly three-quarters (73%) of consumers’ purchasing decisions.
Mobile payments remove a point of friction by removing the physical payment card; users simply hover their device over a reader and walk out with no touching involved. Runners can stop by for a coffee on their way home and pay with their smart watch. Forgot your wallet? Pay with your phone. That kind of convenience is hard to beat.
The change has been swift. At the start of the pandemic, around 27% of small businesses were already reporting an increase in customers using contactless payment options, according to a March survey of 361 companies by The Strawhecker Group and the Electronic Transactions Association.
But, how permanent will these payment trends - born of necessity - be?
In the past, it’s proven difficult to get consumers to abandon their beloved debit and credit cards. Now, industry experts say that so much time has passed in this “new normal” that consumers have likely changed their behaviors for good. “Research shows that new habits are formed in about 66 days. Most of us have sheltered in place for 90-plus days,” says Richard Crone, chief executive officer of mobile-payment research firm Crone Consulting LLC.
Retailers adapting to meet contactless demand
Professional services firm, Ernst and Young, suggests that contactless payments have experienced as much as 10 years’ worth of growth in just four months, and payment providers are working quickly to seize the opportunities represented by these exponential adoption rates.
“Customers and staff are both safer when clients are able to pay with their own device, which puts the spotlight on creating a five-star experience in the merchant’s own branded app,” Crone says.
Retailers such as Walmart, Starbucks and Target have developed their own payment apps to help inspire customer loyalty and further streamline contactless shopping experiences. Elsewhere, credit card companies such as MasterCard allow users to store their credit card information for in-app payments using MasterPass, the company’s digital wallet.
Crone also expects person-to-person payments apps, such as Venmo, to benefit as well. “Small and medium-size businesses are shifting their payments from in-person card swipes and dips on Square and the like to social payments on Venmo,” he says. “Not only does this reduce the risk of face-to-face virus transmission, but it promotes their service or product to their customers’ friends and friends-of-friends, effectively a real-time testimonial to their product by loyal, engaged customers.”
Merchant adoption challenges remain
Unfortunately, inconsistency across retailers remains a challenge to widespread adoption. Although U.S. industry standards were updated in 2015 to require American businesses to switch to EMV (tap) payment terminals for fraud liability reasons, the switch has been slow for a variety of reasons. Even today, many businesses still do not accept tap, or mobile wallets like Apple Pay or Samsung Pay.
But, with the global pandemic, there now exists an unmoving imperative, and businesses that don’t adapt to contactless or tap payment technology will likely not survive in the new normal. The National Retail Federation and Forrester, for instance, found that contactless payments in retail operations increased 69% between January and August of 2020. The same research reported big jumps in the number of merchants accepting some form of contactless payment, and that most retailers expected contactless payments to stay popular over the next 18 months.
There’s no question that the COVID-19 pandemic has changed the ways consumers shop and sped up the adoption of digital payments — likely for good. As more and more consumers continue to ditch their credit cards in favor of their phones and other contactless and digital payments, providers and retailers must work together to improve access and functionality to meet this fast-growing demand.