Coronavirus is a make-or-break test for the payments industry. Here are the 10 things that will define the new normal.

Coronavirus is a make-or-break test for the payments industry. Here are the 10 things that will define the new normal.
Coronavirus grocery store workers

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With fewer purchases, payments companies lose out on fees like interchange. And when people are spending, they're rethinking daily habits and switching to digital options, both online and in stores.

  • The coronavirus pandemic is impacting every industry, and payments companies are no exception.
  • A recent report from McKinsey & Company predicts that payments revenues could drop by as much as $210 billion in 2020.
  • But payments companies are well-positioned to help a global economic recovery and play a role in establishing a new normal for how we pay.
  • From collaboration to product development, here are 10 things payments companies will need to focus on as they look toward recovery.
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The coronavirus is upending global markets and economies, and payments companies in particular could see a revenue hit of up to $210 billion this year.

Businesses and consumers have been spending less, and 80% of the decline in overall payments revenues will be a result of lower transaction volumes, McKinsey & Company said in a recent report on the impact of the coronavirus on the payments industry.

With non-essential businesses shut down and consumers staying at home, foot traffic and in-store spending has fallen. People aren't making big-ticket splurges on travel and live entertainment. And the coronavirus is hitting luxury spending on both the supply and demand side, the report said, with purchases from China slowing dramatically and production of premium brands in Italy halted.


With fewer purchases, payments companies lose out on fees like interchange. And when people are spending, they're rethinking daily habits and switching to digital options, both online and in stores.

The payments landscape is broad, from card giants like Visa and Mastercard to tech players like PayPal and Square. And since the ability to send and receive payments plays a role in any businesses, startups like Finix and Stripe have found a market in payments-as-a-service, selling plug-and-play platforms to other businesses.

But payments companies are also poised to help the global economy recover. There have yet to be any major reported outages, and there continues to be a high level of consumer trust.

So in the long term, payments companies may be well positioned to establish a new normal in how we pay post-coronavirus. But they'll have to prioritize things like collaboration and product development in order to get a piece of any eventual bounceback.

Here are the 10 things payments companies should keep in mind if they want to play a part in changing the way we pay, according to McKinsey's report.


Digital options

Given concerns of the spread of COVID-19, consumers and businesses have moved away from spending with cash and checks. Banks are closing branches and encouraging their customers to bank online and over the phone. Payments players will need to promote and design more digital options for their customers.

Financial inclusion

Today, a cashless economy means the underbanked are left behind. And merchants that aren't set up for digital commerce are also at a disadvantage. Payments companies should design inclusive platforms to ensure both consumers and businesses are able to adapt quickly in a digital transformation.

"Limits in the payments infrastructure or prices should not be used as an excuse," the report said.

Reliable digital currencies

"With values collapsing and trust eroding, digital currencies have proved incapable of delivering on their promise of a universal payments solution in a time of need," the report said.

The current crisis has highlighted the essential role governments play in keeping the global financial system stable. While digital currencies can provide efficient means of moving money, they'll need to be more reliable in times of crisis.


Both JPMorgan and Wells Fargo have launched their own digital currencies to quickly move money in and out of client accounts. But both banks pegged their digital coins 1:1 to a reserve of US dollars, meaning their values are static.

Bridging in-store and online spending

Building omnichannel payments platforms, meaning those that can accommodate different ways of shopping including in-store and online, will be key.

Square, for example, started as an in-store point-of-sale provider, and has since launched a suite of online payments products to support merchants' ecommerce efforts.

Bridging physical payments with digital options will be essential for all payments players, especially as retailers begin to reimagine how they reach consumers. Ecommerce continues to grow, and retailers that have closed their brick-and-mortar stores amid the coronavirus pandemic will likely seek ways to reach shoppers online.

Touchless payments

Contactless payments have taken a while to catch on in the US. But in the UK and much of Europe, tap-to-pay technology using both cards and digital wallets is more common.


And today, consumers and merchants are trying to limit the amount of contact required to make day-to-day purchases. By encouraging their customers to use contactless options, merchants can help drive consumer adoption, the report said. So payments companies should embrace and facilitate these contactless technologies.

Offering more for digital wallets

Digital wallets are widely available on popular devices like smartphones and watches. But further adoption is still needed. By offering more features, like digital IDs, could boost usage. And by monitoring transactions at merchants, digital wallets could offer features like alerts to users when a store is too crowded or when items ordered for pick up are ready.

"Companies that provide viable options for integrated and contactless payments, to both customers and merchants, will probably have a distinctive edge over competitors," the report said.

Data protection and fraud prevention

Fraud prevention and data security for payments players' customers must be a priority as consumers get more comfortable with the use of data for security measures amid the coronavirus pandemic.

And to sustain users' comfort with data sharing, payments companies can preemptively prioritize user-focused fraud prevention measures.


Market-wide cooperation

During times of crisis, cooperative mindsets tend to set in. And challenging market conditions will put fintechs in a position where they need to pursue more collaboration with other players.

"We believe this development will lead to a new fintech landscape, geared more to marketwide cooperation and win-wins and less to challenging the incumbents," the report said. As valuations and market outlooks change, industry consolidation through M&A could continue, but partnerships will also play out as payments players look for growth.

In 2019, the payments space had a buzzy year for M&A, from FIS' acquisition of WorldPay to Visa buying Plaid. But more and more, fintechs are seeking partnerships with incumbents. Larger payments players also look for partnerships through their own venture arms.

Payments-as-a-service partnerships with banks

Payments are a major cost for most banks. And tech budgets are often used to maintain outdated systems as opposed to building new ones. By embracing tools like automation and cloud-based tech, banks could lower their long term costs for processing payments.

Payments-as-a-service fintechs, which sell payments systems to other companies, could also see a bump, especially as IT budgets get reduced amid tough market conditions.


The regulatory landscape

Payments companies should seek partnerships with regulators to establish the new normal. Regulators should support innovation in payments as players in the space find new models that solve real-world problems.

And early indicators are hopeful, the report said, citing the US Federal Reserve, the FDIC, and the OCC's move to delay companies' adoption of regulatory liquidity standards. This frees up more cash and helps boost lending activity amid the coronavirus pandemic.

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