Coronavirus: How a global pandemic has shaken up payments regulation

Coronavirus is having an immediate and dramatic impact on the way consumers use payments, which could have a lasting effect. Payment habits traditionally change very slowly, over years rather than months, but coronavirus is set to change all of that and there is every likelihood that we won’t switch back to old habits when it’s all over.

Cash has always been king. According to the UK Finance Payments Market Report 2019, “the number of cash payments continued their long-term decline during 2018. Nevertheless, cash remained the second most frequently-used payment method in the UK in 2018 and is forecast to remain so until at least 2025.”  

But will this prediction remain valid after coronavirus? Probably not — contactless payments have rapidly become preferred to cash by retailers on the high street for ease of use and due to the fact that cash has become unpalatable as it carries the risk of contagion. Added to this, free access to cash at ATMs has become difficult as a result of restrictions on movement and is fraught with issues around contagion from consumers touching ATM screens and entering PINs. Those who continue to need cash may switch to online orders with home delivery of sterling, much like any other currency. A more radical change in the use of ATMs may replace the dispensing of notes, with uploading value onto a stored value card.

Until very recently, it was unheard of to see “Contactless preferred” notices in retail premises. How long before we see “Cash not accepted” signs? When first rolled out, contactless payment was only accepted by retailers for purchases over £5, then up to a maximum of £30 and, as of April 1, 2020, for purchases up to a maximum of £45, as a temporary measure. Andrew Cregan, head of payments policy for the British Retail Consortium, said [23 March 2020]: “The last contactless limit increase to £30 took two years to implement but, given the extraordinary circumstances we face today, this new £45 limit has been rolled-out in weeks.” 

This, then, is the business imperative that will drive contactless usage and displace cash much more quickly than had been predicted. The new UK limit is above the EU average of €25, but below some international limits, which tend to be much higher, such as the £145 limit in Japan.

Across Europe, busy high streets are becoming deserted and purchasing habits are turning ever more to online. Conservative estimates by UK Finance in its 2019 Payments Market Report found that well over two-thirds of UK adults (72 percent) were using online banking and nearly half (48 percent) were using mobile banking. Coronavirus will have a significant impact on these numbers as online shopping becomes the only viable option for non-essential items. In turn, this may lead to increasing concerns about online banking fraud, which could result in a more general mistrust of banks.

Authorised push payment fraud (APP fraud), in which customers are tricked into authorising a payment into an account controlled by a criminal, was the fastest-growing type of fraud in the UK even before coronavirus hit. A new voluntary code was agreed in May 2019 to ensure the victims of APP fraud are better protected. In 2018, UK Finance members reported 84,624 incidents of authorised push payment scams with gross losses of £354.3m. However, despite the industry’s best efforts, underpinned by the new code, in the first half of 2019 £208m was lost to APP fraud. This was up 40 percent on the same period for the previous year and it is likely this trajectory will continue, if not accelerate, given the significant move towards online purchasing during the pandemic. 

Although the full economic consequences of the pandemic on the payments industry are still unclear, it is evident that there will be profound effects on the payments ecosystem and participants need to prepare for fundamental changes. In summary:

  1. Physical cash payments are likely to decline, and contactless payments will become the norm, as people learn to live without physical currency. The concern of coming into contact with the virus has given a real boost to contactless, card and wallet payments, and this trend looks set to continue as it becomes ingrained in people’s everyday lives.
  2. The move towards digitalisation will increase as populations become accustomed to fulfilling their needs via digital tools. Merchants that don’t have access to digital infrastructure will lose out, and organisations that provide viable options for integrated and contactless payments, to both customers and merchants, will likely be the winners.
  3. The growth of online commerce has accelerated and this pace is expected to continue long after the lockdowns currently in place across the globe have ended. Consumer patterns are changing, with even markets such as Southern Europe, which lagged behind Northern Europe, and Asia, now catching up. The payments industry needs to prepare for the continued expansion of online consumer spending.
  4. Financial institutions and retailers must prepare to constantly adjust fraud controls to support changing consumer behaviour and protect against increased APP fraud. 

Although the current focus is ensuring that people remain healthy, it is important that firms keep an eye on the changing environment and start preparing for life after coronavirus. What we experience today is likely to become the new normal of tomorrow.

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