E-payments, digital commerce on the up and up
Global lockdowns due to COVID-19 led to limitations which led to steep reduction in spending and overall cash usage. Impact from this is especially clear in travel and entertainment categories. But if you wonder what/who else was impacted due to these lockdowns and yes, even the worsening geopolitical tension between US-China, McKinsey has interesting perspectives.
The management consulting firm reported, “While some categories of spending rebounded, consumers’ well-documented shift from the point of sale (POS) or in-person transactions, to digital commerce, accounts for the reduced use of cash.”
In retail, the impact was not a decline but a shift in buying behaviour.
For first 6 months, consumers spent USD347 billion with US retailers, up 30 percent from same period last year. For example Amazon’s contribution for 2nd quarter of 2020 was a 40-percent year-on-year growth which was boosted by tripling of grocery sales.
McKinsey even noted that in Europe older shoppers turned to online shopping for the first time.
Overall, this meant all forms of electronic P2P and consumer to business payments have increased. In many regions, this meant the usage of debit cards increased for consumers with lower valued transactions and who want to avoid contact as much as they can. The trend reflects that contactless payments may take on higher-valued transactions as well.
In Asia, alternative payment methods like instant and mobile payments grew. In countries like Australia, credit card usage even declined.
McKinsey expects at least a 4-percent reduction in share of global payment transactions executed via cash, from 2019’s 69-percent.
This is equivalent to four to five times the annual decrease in cash usage observed over the past few years.
Implications
It is worth noting the coronavirus impact especially upon banks. Decrease in cash usage spell benefits as the cost of cash handling exceeds cash-related inflows. Electronic payments also generate incremental revenue.
Cross border payment flows, without a doubt have been severely affected also. There was a clear drop in international travel, and inter-regional as well as intra-regional trade cut into cross border payments volumes.
But cross border e-commerce volumes told a different story altogether. As initial logistics challenges were overcome, there was double digit growth, with UPS and PayPal for example, reporting double digit growth on cross-border shipment volumes and the value of merchandise sold.
Many companies are realising the strategic weaknesses in their existing global supply chains, given trade frictions and potentially recurring public-health disruptions, leading to the exploration of nearshoring and other rebalancing measures.
McKinsey analysis reveals potential shifts of as much as USD4.6 trillion as these rebalancing measures play out in global trade flows over the next five years.