The pandemic has caused a drastic shift in the economy, how businesses operate, and how people pay. Read more to learn why mobile wallets may be here to stay.
Almost nothing has been left untouched by the COVID-19 pandemic, which has led to a tidal wave of changes across industries. The FinTech and payments sector has not been excluded from this impact as the coronavirus has driven a clear shift to contactless payments options in North America.
As contactless payments continue to surge, it begs the question of whether or not shifting consumer behaviors will stick even after the threat of the coronavirus dissipates. It’s a complex question as leading mobile wallets like Apple Pay, Google Pay, and Samsung Pay have been wrestling for market share, not just with each other, but with other leading payment methods for the past few years. Will this be the digital wallet’s moment to gain traction or is it just a flash in the pan?
Health Concerns Spur Contactless Growth
Both contactless cards and mobile payments have been growing in the US, with usage rising steadily throughout the coronavirus pandemic. One report noted that almost one-third of consumers in the US became first-time users of contactless payments during the pandemic. Most people plan to continue using contactless payment options after the Covid-19 dust settles. In fact, contactless card payments are forecast to increase eight-fold between now and 2024 in the U.S., with mobile proximity payments also increasing sharply. Alternatively, the transaction volume for both credit and debit cards dropped sharply from early March through early April in 2020, equating to a 30% and 25% drop year-over-year, respectively.
While credit cards still hold the gold when it comes to leading payment methods in the US, alternative payment methods like digital wallets are expected to overtake credit cards via a share of E-commerce sales over the next two years. Mobile wallets have been increasingly used for remote and in-store purchases as well as person-to-person (P2P) transfers. According to a survey by the Economist Intelligence Unit (EIU) in January/February 2020, 60% of respondents said they were more likely to use digital payments for daily transactions instead of cash.
The impetus for the drastic behavior change is obvious; health concerns are very much behind the change in payments behavior. Many local merchants and some larger entities have stopped accepting cash. Larger merchants are incentivizing consumers to use contactless methods. Cash is not the only culprit behind payments health concerns. People are more hesitant to touch dirty screens — like those on ATMs or POS PIN pads and signature screens. At this stage, we don’t yet know if these behaviors will stick around for the long haul, even after the pandemic has ended. Most likely, these habits will persist.
Benefits of Digital and Mobile Wallets
Digital wallets and mobile wallets provide convenient alternatives to paying with cash or card. Many also serve as secure storage for other items like concert tickets, loyalty cards, or boarding passes. Mobile wallets enable consumers to make a payment at an in-store POS terminal by transferring credit or debit card information via Near Field Communication (NFC) technology. Some merchants are now using QR codes in place of NFC to send the payment information to a merchant via a scanner or camera.
Each method includes strong security mechanisms to keep payments and payment card data safe. They are password and biometrics protected and encrypted and tokenized. In this way, mobile and digital wallets provide a safe, secure, and convenient way to pay across a wide range of scenarios, both in-person and remotely.
These benefits are part of the reason that consumers have taken to digital wallets so seamlessly as a solution to the current health risks of the pandemic. Contactless payments are expected to nab another 10% to 20% of transactions due to the pandemic, and P2P services are expected to see a continued uptick as well.
It’s also these benefits that may spur continued use of mobile and digital wallets beyond the pandemic. While mobile and digital wallets have been around for years, adoption has lagged and the big players have found that changing consumer payment behavior is a much larger challenge than originally anticipated.
Digital and Mobile Wallets Have Been a Boon
The pandemic gave people a compelling reason to change their behavior and a little more than one-quarter of small businesses (27%) in the U.S. say they have seen an increased use of services like Apple Pay by customers. This has been a boon for retailers and restaurants — some of those hardest hit by the closures and shutdowns resulting from government-enforced health measures. Digital and mobile wallets have played a big role in keeping businesses resilient and liquid in a time where much is unknown.