The proliferation of digital, contactless payments will continue; the newest fintech innovation will be a refresh of an industry mainstay; and more
Since the COVID-19 pandemic began, the payments industry has changed rapidly, in response to the evolving needs of consumers, businesses and the financial services industry. The biggest evolution has been a shift to digital, contactless payments. Though this shift was in progress pre-pandemic, COVID-19 has expedited its path to ubiquity like never before – as the outbreak progressed and many were under stay-at-home or social distancing orders, digital payments were simply a safer, more convenient solution.
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The convergence of COVID-19 and the shift to digital has also had a cascading effect within the industry. It left millions of un- and under-banked Americans vulnerable. It’s also changed how consumers spend their money, exposed friction within the payments ecosystem and even changed the ways we want (and need) to access cash.
Here’s how we predict these four key trends will play out in 2021:
- Fintechs will leverage an industry mainstay — debit — to deepen customer relationships. Fintechs will continue to embed debit accounts into their ecosystem as a way to deepen customer relationships. Debit was already the most popular payment type, accounting for 55% of all card payments in 2018. During the pandemic, it became even more popular, as financial stress led many consumers to opt to spend their own money (versus taking on additional debt through credit cards or loans). We predict fintechs will continue to leverage debit to drive customer stickiness. Some companies that offer fee-free investing platforms or early access to earned wages are already doing this — they win customers with their original value proposition, and wrap that offering around a debit product that can keep a customer’s money more engaged with the platform on a daily basis. Debit is also being leveraged as a payment solution by some companies to get gig workers, freelancers and sales agents their payments quickly.
- Prepaid cards and new banking solutions will help to close the digital gap for the unbanked. Right now, it may make more sense to order an item online you’d traditionally buy with cash in-store, or to arrange to purchase your takeout dinner in advance electronically. Whilemany of us take these conveniences for granted amid the pandemic, for millions of Americans who were used to relying on cash to pay, it’s not that easy. And in fact, it may leave them more vulnerable. New digital banking solutions and general purpose reloadable prepaid cards are a convenient way for un- and under-banked consumers to access our country’s increasingly digital financial system, so it’s no surprise the FDIC found nearly 30% of unbanked households use this payment tool, which we predict will continue to grow in popularity. Cash is getting pushed to the sidelines more each day, as a digital account makes daily life easier and more convenient to navigate.
- The demand for faster payments will grow. Consumers have been telling us for a long time that they are frustrated with friction and latency in the payments ecosystem. Pre-pandemic, we released research titled Faster Payments: What Consumers Want from Businesses, and one of the key findings was that consumers want seamless, instant options to spend, receive and move money. Another key finding was that businesses that offer faster payments could see positive impacts on customer retention and loyalty. What the pandemic has done is brought some key value points around this to the forefront, like the speed and contactless elements of these payment options. For these reasons, we expect that those in financial services will re-prioritize faster payments if they have not already, and that consumer adoption will continue to ramp up, too.
- The industry will begin to reimagine the ATM as a technologically advanced, interactive teller machine. According to our new research on post-pandemic sentiments around ATM and cash usage, more than two in five Americans (43%) are interested in completing banking activities like cashing checks, making deposits and withdrawals or video conferencing with a remote teller at an ATM digitally, instead of having to physically go into a bank branch. In fact, one in five Americans (19.4%) would strongly prefer completing these activities at an ATM instead of going into a bank. At the same time, 24% say they’re less likely to visit a bank branch due to the pandemic. The convergence of these two issues helps to underscore a need for conveniently located, self-service-focused ATMs.
Last year was one of tremendous change in the payments industry, and we expect this rapid evolution to continue well into 2021. For those looking to get ahead, thinking digital will be key.