Cash no longer king
While much has been said about the impact of COVID-19 on the payments landscape in Australia, what’s needed now is a stronger focus on what’s likely to shape the industry in 2021 and beyond.
The changes in the payments space brought about by the COVID-19 pandemic constitute a general acceleration of trends, perhaps most notably being the transition to a “less cash society” which had begun to gain momentum years earlier.
Widespread lockdowns pushed more consumers online to shop and many retailers began only accepting digital payments in response to general hygiene concerns around the use of cash. Recent research indicates that since the start of pandemic outbreak more than two in three Australians are using less cash in favour of contactless technology and other digital payment methods.
This move online has also contributed to the meteoric rise of buy now, pay later (BNPL) services, with a raft of new players entering the market in 2020, including the launch of BNPL offerings from incumbents looking to stay relevant.
A major drawcard of BNPL services – being the ability to pay off purchases in instalments overtime – has also seen a considerable drop in credit card transactions, which have declined eight per cent since the start of the pandemic in Australia – a trend likely to continue.
At the same time, increasing use of new digital payment methods is being aided by the growing use of smartphones and wearables with integrated technology such as Apple Pay, Samsung Pay and Google Pay.
In a post-COVID environment, where consumers demand a more flexible payments experience that avoids bunching in queues or around a counter, innovation in contactless payment technology is expected to boom. Retailers will be looking for ways they can facilitate customer payments at any location in the store.
The rise and rise of BNPL
Between FY2018 and FY2019, the number of BNPL transactions shot up from 16.8 million to 32 million – an increase of 90 per cent. While the popularity of BNPL services began ramping up in late 2018, more online shoppers fuelled an upsurge in consumer demand for these offerings throughout 2020.
While larger players have continued to dominate the BNPL market – think Afterpay, ZIP, Humm and Sezzle – an increasing number of new market entrants have begun providing more niche BNPL offerings, such as those financing solar panels or whitegoods.
We’ve also seen larger incumbent players like CBA, NAB and PayPal enter the BNPL space, which will have a significant impact on how the sector evolves beyond 2020.
All the while, the debate over whether the BNPL sector should face tougher regulation has been ongoing and will continue well into 2021, with the impact of BNPL services on the consumer at the centre of the conversation.
A core focus remains on ensuring customers are at all times equipped to accept as many payment options as possible. The more payment methods that retailers can provide, the more sales they will attract, and considering the trajectory of the BNPL sector it’s certainly a payment method worth investing in.
Bullish on biometrics
Although still very much in its infancy in Australia, another key payment trend gaining momentum is the use biometric technology such as fingerprint scanning and facial recognition, which simplifies the payments process and provides an additional layer of security. Businesses such as Apple use these methods to authorise payments in Apple Pay, and customers are becoming increasingly comfortable with the convenience and security they provide.
Outside the more mainstream biometric options are a handful of others on the cusp of expanding in Australia, including palm and vein recognition biometrics, with nearly one in five Australians indicating an interest in using a microchip in their hands to facilitate payments.
Beyond the convenience and security that biometric payments provide, they also improve the accessibility of the payments system for the disabled community, particularly the visually impaired who may be unable to operate a traditional payments terminal.
While advances in smartphone technology mean many Australians are already familiar with some forms of biometric authentication, there is still work to be done in educating the public on how biometric payments work in order to ensure consumer trust and a willingness to adopt the technology long-term.
A look at key industry trends and where the payments industry in Australia is headed indicates what consumers value when it comes to making payments – flexibility, speed, security, and above all, convenience.
For an industry that had already entered into a period of significant change, the impact of the COVID-19 pandemic on how consumers are now choosing to pay will ensure disruption and innovation in the payments industry continues at pace.
While the payments sector has remained one at the centre of much regulatory and policy activity for some time, much of this work took a brief hiatus in 2020 but is now once again back on the agenda, buoyed by vibrant public debate and opinion.
Looking ahead, as the payments space continues to take shape, so too will a new set of challenges and opportunities for the sector, not least of which will be safeguarding the stability and integrity of the payments system, which is only as good as the confidence merchants and consumers have in it.
Tom Graham is Head of Innovation at Quest Payments