A recent study shows that the global payments industry is changing faster than ever. We took a look at:
- how this is happening
- what role the pandemic is playing
- where the future is headed
Anything global in scale will have complex ramifications. The Covid-19 crisis all the more so, as its effects are still so much in flux. From the AirPlus perspective within the business travel payment world, we have witnessed a rapid acceleration in the rate of change for global payments. No matter where the crisis goes from here, we can be confident that this pace of change will be felt in the industry for many years to come.
Grave repercussions
The profound events of 2020 have meant a rethink across sectors and industries.
The repercussions of the crisis — from government protective action to sudden changes in consumer behavior — have been felt around the world. We at AirPlus have experienced the shift on both of our economic fronts: the business travel industry and in global payments. We recently explored the cautious but innovative return to business travel in our home country of Germany. Check out that article here.
As for payments, hard times have called for innovative measures here too. And hard times they are. Global revenues declined by an estimated 22% in the first six months of the year compared with the same period in 2019.[i] The recovery is already well underway, though, and the lively changes in the industry could, remarkably, bring revenues back to within 7% of last year.
A half decade of change in just a few months.
A recent report from McKinsey describes how the global payments industry has undergone a half decade of change in just a few months. The report explores the actions payments providers need to take to compete effectively in the next normal.
McKinsey is well positioned to comment on the marked rate of change in the industry, having developed their Global Payments Map over 20 years of data-based observation of the industry landscape.
The role the pandemic has played
The Covid crisis has presented many situations of one door closing and another opening.[ii]
Despite the drama of 2020, the payments industry continues to make gains in its share of overall banking revenues, moving from 33-40% in the five years before the pandemic. In fact, the sector is projected to end this turbulent year having only lost about a year's worth of growth.
The consequences of lockdown speak for themselves. Along with massive reductions in cash usage, government protective policies have also meant steep declines in discretionary spending: 40% globally and up to 90 percent in some industries such as travel and entertainment.
Not a drop but a shift
The reduction in cash usage has been a classic case of one door closing and another opening. The report details how consumers have shifted in droves from the point of sale to digital commerce. Remarkably, retail hasn't even declined! In the first six months of the year, consumers spent 30% more than the same period last year. Amazon recorded 40% growth, tripling its grocery sales. Critically, differences among age groups eroded. According to the report, "many consumers (in particular, older shoppers) turned to online shopping for the first time."
Recipe for recovery
While the global crisis leaves many of us with very real economic concerns, there is one sure-fire way to increase our odds of remaining competitive, in the payments world and beyond.
"The real challenge — as well as the real opportunity — lies in embracing the acceleration of change," McKinsey's report proclaims. While greater recovery opportunities will be found in developing economies like Brazil, India, Indonesia, and Thailand who still have so much to gain from digitalization, markets starting from a high level like those in North America and Europe have a recipe for recovery. Fueling payments-revenue growth will come first and foremost from embracing digital-friendly trends inspired by the pandemic. Covid won't spell the end of spending, but it just might spell the end of spending cash.
[i] mckinsey.com/industries/financial-services/our-insights/accelerating-winds-of-change-in-global-payments
[ii] Photo by Jan Tinneberg on Unsplash
