2020 brought a whole platter of new experiences for us all. The entire world had to adapt to a new environment and find new ways of being creative, agile and determined. Still, we can find a positive way to look at things, despite all that.
We saw an acceleration in certain facets of the retail industry (such as a boom in online shopping), and things progressed at a speed we didn’t expect. The pandemic acted as a jump-start for digitalisation, allowing the payments industry the opportunity to innovate. For instance, consumers are more inclined to shop with retailers who improve the shopping experience with technology, including the implementation of new ways to pay. Even customers who were previously less familiar with using technology had to go online to order groceries and catch up with loved ones. Online shopping has been turbocharged by the pandemic and there’s no going back.
As businesses of all sizes are looking to bounce back from Covid-19’s effects, here are some payments and fintech trends we see taking off in 2021.
Buy now, pay later
Lockdown periods during the pandemic have resulted in millions of jobs being lost or put on pause, leading to serious financial challenges. This resulted in more people adopting buy now, pay later (BNPL) methods in 2020, and we can expect this trend to continue to increase. BNPL schemes were named as the fastest-growing online payment method worldwide in 2020, and businesses have plenty of benefits to draw from implementing these flexible payment methods in 2021, since BNPL will boost basket conversions and customer loyalty.
According to Kaleido’s report, BNPL’s value will reach more than 12 per cent of total e-commerce spend on physical goods by 2025. Kaleido also predicts that Europe will be responsible for some $347 billion in e-commerce spend via BNPL mechanisms in 2025, representing 30 per cent of the total e-commerce spend in that year.
With countries having to find ways to maintain the necessary hygiene standards to prevent spreading the coronavirus and put a stop to the pandemic, we have observed a huge uptake in the use of contactless payments and digital wallets.
Dutch consumers, for example, expect that they will continue to pay electronically more often than before. 39 per cent of surveyed Dutch consumers who have reduced their cash payments since the Covid-19 crisis are certain they will continue to pay electronically more often, while 43 per cent consider this likely. Over the course of 2020, the proportion of Dutch consumers that preferred contactless payments rose steadily. In February 2020, 45 per cent preferred to pay contactless for all their purchases. Six months after the pandemic broke out, this figure had risen to 54 per cent.
The Covid-19 pandemic has accelerated the digital transformation journey, with increasing numbers of non-finance digital brands embracing banking-as-a-service (BaaS).
This plug-and-play approach enables service providers to embed a wide range of financial services into their suite of offerings, which can be accessed by consumers even if they aren’t customers of the underlying bank.
Moreover, BaaS is a solution for banks that want to modernise, gain customers and offer a greater range of services to existing clients. Actually, BaaS is increasingly seen as a way to complement banks’ core businesses, according to a new report.
Embedded finance offers new digital growth opportunities to incumbent financial institutions – an addressable market worth more than $ 7 trillion. It’s time for financial institutions to serve those parts of the market that have been underserved, especially with SMEs being more demanding and driving banking-as-a-service uptake.
Today, banking-as-a-service providers focus primarily on supporting fintechs. For incumbents, however, it is highly important to understand how API-based BaaS platforms work and the options they have in terms of where to play, how to win in this space and how to support this market opportunity in a meaningful way. Especially as the pandemic has put into sharper focus existing inefficiencies and amplified the need for disruption in the distribution of financial services.
BBVA, for instance, has taken a unique approach in tackling this market. In the US, BBVA’s APIs aim to help third parties in the development of financial services (BaaS model), but the bank has many other examples in Mexico and Spain in which it seeks to co-create digital journeys with its partners or enhance the digitalisation of its client’s processes.
We’re seeing a range of hubs from around the world undergoing a rapid expansion within the green fintech sector.
Switzerland’s government has launched a Green Fintech Network to identify and propose new measures that will improve the operating environment for start-ups involved with sustainable finance and tech. The network has been created by the State Secretariat for International Finance (SIF). Initial members include fintech and venture capital firms, consultancies, law firms, and universities.
The SIF, which is overseen by the Swiss Federal Department of Finance, published a survey on the opportunities and obstacles facing green fintechs. Reported barriers included high requirements regarding client onboarding and know-your-customer (KYC) processes; the limited size of the Swiss market; lack of access to talents from non-EU countries, as the available quota is taken up by larger companies; and higher development costs compared with other fintechs, due to longer time to profitability.
Recommendations include, among others, mandatory disclosure of environmental risk and impact information for larger companies; the establishment of a permanent technical working group for green fintechs, mandated with producing an action plan; support of VC funds that focus on green fintechs; and improved collaboration between financial institutions and green fintechs (through open finance, for example).
The adoption of social media payments
Social media shopping (social commerce) is a growing trend. Covid-19 has acted as a catalyst, increasing social media engagement by 61 per cent compared with previous usage rates. In other words, coronavirus lockdowns have brought the future of social shopping closer and that is why PSPs and other financial institutions should start providing social media payments to their clients.
Firstly, PSPs need to offer a platform that can easily embed a payment method into social media posts. Customers should be able to instantly pay for a product they see on a company’s feed, without having to browse on the merchant’s website. This will result in fewer dropouts. Also, companies will be enabled to capture new buyers and a younger market, as the majority (58 per cent) of 13-to-37-year-old consumers report being interested in purchasing items directly from social media feeds such as Instagram, Facebook or Pinterest, and 81 per cent believe if you are posting a social media ad, there should be a direct link to purchase.
It is also essential to provide an option of alternative payment methods (such as QR code or pay-by-link payments). PSPs should expand their payment methods as they are relevant for e-commerce retailers, as well as being appealing to social media shoppers. It’s important to seize this opportunity and look at enhancing the shopping experience for customers across all channels, including social media.
by Oana Ifrim, Senior Editor, Banking & Fintech, The Paypers