Payments in 2021: A New Year, A New World

By: Discover

While 2020 was a difficult year, foretelling what 2021 will bring might be even tougher. The COVID-19 pandemic affected the entire payments ecosystem—from merchants rushing online to consumers shopping remotely for groceries, clothes and even new cars.

In the span of just months, existing payments trends that had been progressing slowly were suddenly jumpstarted and moved to the lead. E-commerce soared while fraud concerns kept pace, contact- free became the word of the year, and non-cash, card-not-present, and buy-now-pay-later arose as some top transactions of choice.

Indeed, with the impact of the pandemic accelerating the trend, global e-commerce jumped 23 percent in 2020, exceeding $4 trillion for the year, according to 451 Research, a part of S&P Global Market Intelligence. In the U.S. alone, e-commerce as a ratio of retail trade leapt 36.7 percent in the third quarter compared with a year earlier, the government said. Even when the pandemic subsides, no one expects everything to go back precisely to the way things were. In many ways, the coming year is poised to be a unique mix of payments returning to what previously existed and the start of

a world facing a new frontier. Given all that occurred, there’s no doubt that “both consumers and financial institutions are happy to close the books on a long, unpredictable, and challenging year,” Brian Riley, an analyst at Mercator Advisory Group, succinctly concluded.

According to analysts, most of the major shifts this year are likely to continue existing trends. But given what the pandemic brought, each of these are expected to either surge or morph in previously unforeseen ways.

Omnichannel Adoption Accelerates
Whether or not the surge in e-commerce continues unabated, the expanded infrastructure and options adopted by merchants have likely changed the landscape for good. Contact-free and online will remain keywords going forward, and the impact of the pandemic is certain to remain.

This rise in merchant flexibility from desktop to mPOS to text receipts to payments has established a new marketplace for shoppers to explore. And consumers, already used to the change, are signaling no desire to return to the past. In fact, a full 35 percent of consumers said they strongly agree that they will continue to shop online for most items, even after social restrictions are lifted, a survey by 451 Research found4. This research showed that of the 30 percent of consumers who said they tried curbside pickup, for example, 96 percent said they were satisfied with the option.

The Customer Experience of Fraud Prevention
With the shift online, card-not-present (CNP) fraud also increased. Fraud prevention strategies are key to fighting risk, but preserving a favorable customer experience is a must. Consumers have repeatedly cited cumbersome steps at the point of checkout as a top reason for abandoning their carts. But they also worry about identity theft and fraud, with 85 percent of shoppers expressing some level of concern.

Removing friction for loyal customers requires a combination of strong verification protocols and personalized customer journeys. Retaining individualized data in a secure and manageable state can reduce false declines and streamline both logins and checkouts. Auto-filled templates help speed the process by populating names and addresses. Identifying payment card types by the first four digits and providing a tailored template for a card verification value (CVV) also adds convenience and protects against fraud.

Analysts expect technologies, such as ours, to continue adapting to fight increasing risk with rising customer expectations. “In today’s evolving and complex commerce ecosystem, fighting fraud requires a multi-layered approach,” advised Aite Group analysts, when asked by Discover about future trends.

Super Apps and QR Keep Pushing Ahead
With digital wallets continuing to grow in popularity in China, India and elsewhere, these applications that go well beyond payments are expected to expand their presence globally. By incorporating payment capabilities, social media, merchant offers, loyalty programs and more within a single application, these mostly mobile- based platforms have been booming in recent years.

Super apps typically rely on the use of Quick Response (QR) codes for transactions, as scanning QR codes can transfer a large amount of merchant and consumer data. Near Field Communications (NFC) has typically been favored in the West, but the use of QR codes is globally on the rise.

“To date, wallet apps in the U.S. have been largely payment-centric, but this is beginning to change,” said 451 Research. “We are observing several U.S.-based players make moves toward becoming so-called ‘super apps.’” Analysts at 451 expect additional capabilities, such as cryptocurrency purchasing, investments, and messaging also to be added to the offerings.

These digital malls, provided in a single application, are also providing customer access to a world of micro-merchants—those retailers or providers often transacting from phones or digital platforms. As more merchants or gig workers shift to these apps, these sites for lower-value transactions are expected to grow.

Opting for Installment Payments
The economic impact on consumers during the pandemic had many shoppers seeking more manageable and predictable payment schedules. As a result, installment loans, with set monthly repayments, became increasingly popular. Research from 451 found that 10 percent of consumers tried an installment option for the first time during the pandemic with 87 percent satisfied with the experience.

The option to divide purchases into often interest-free installments not only allowed for bigger-ticket items, but also made it more likely that shoppers would return. But the one concern that some lenders encountered was with buy-now-pay-later (BNPL) plans that charged consumers no interest and split the cost to just a few payments.

Because in many countries these types of loans do not require a credit check of consumers, lenders were unable to measure the risk. This pushback against some BNPL providers is expected to increase as the year moves ahead.

SCA Marches Forward
On a more regional level, merchants and others are also continuing to monitor the implementation of the Strong Customer Authentication (SCA) regulations in the EU. Designed to increase the security of online transactions, those safeguards have become arguably even more timely with COVID-19’s boost of e-commerce. Implementation of the requirements, though, has not been without controversy as ensuring that necessary customer verifications are met by merchants and financial institutions has proved to be challenging.

Originally slated to go into effect in 2019, the SCA’s rollout was delayed in the EU until the end of 2020. But some countries, such as the U.K. and Denmark, have delayed its implementation, while others have signaled they may slow its introduction. Regardless, precisely how the new regulation plays out and what impact it has on the industry at large are expected only to be known as the full year progresses.