How COVID-19 changed the way we pay (short-term)

Rik
Rik Coeckelbergs Founder and CEO The Banking Scene

I guess it is an understatement to say the corona crisis changed the way consumers think about money and payments. From one day to the other cash was dirty. We were spreading the virus by paying.

The first days, most consumers thought that toilet paper was the new way to pay and so everyone started ‘withdrawing’ toilet paper as if it were cash. The hype was over a lot faster than the jokes about this new phenomenon.

Just like bitcoin, it quickly became clear that toilet paper is not a safe haven for your money in times of a crisis.

Less cash: it’s dirty money, and it just got more expensive for society

Digital banking just reached a new dimension. For years, banks are looking at how to convince their customers to bank digitally and suddenly nature comes in and decides the rules for them.

Who still wants cash?

Digital is the way to go. There aren’t many statistics available yet, as things switched so rapidly (happy to see some first results if you can share them). Let’s be clear: most of the cash acceptance points are currently closed and consumers are pushed to e-commerce and card payments. So relatively speaking, we can expect to see more electronic payments.

Relatively speaking? Yes, because in times of a crisis, people simply consume less. They anticipate on bad times and they postpone non-urgent buys. Especially now, with so many people stuck at home and technically unemployed and shops being closed. This reduces spontaneous purchases.

On top of that, people expect a certain standard of service from the online merchant, which is on the short term not guaranteed, because of illnesses or travel restrictions or any other obstacle in the supply chain. As a result, people delay their purchases. Ecommerce Europe surveyed the possible impact of the corona crisis on e-commerce and found out that 65% of respondents expect a decline in sales.

And yet, digital is the way to go. The cost of cash is told to be already more expensive than card payments, before the crisis. Now we can also add the cost of cleaning on top of that.

Cost of cleaning? That’s right. Cash is dirty and possible infected. China started with it already in February. An article on CCN China stated: “All Chinese banks must now literally launder their cash, disinfecting it with ultraviolet light and high temperatures, then storing it for seven to 14 days before releasing it to customers, said the central Chinese government”. Richard Turrin even stated in our interview that they simply burn cash to slow down the virus.

A lot more contactless

Suddenly contactless was king. No one cared anymore about “the risks of contactless”.

On the contrary, the corona crisis helped customers to adapt to contactless payments on public transport, on markets and in shops. It triggered the debate to increase the limit of the cumulative amount of contactless for PIN entry. The Netherlands raised the amount from €50 to €100 on March 20. The UK will raise the amount from £30 to £45 starting 1 April in ‘some shops’. In Belgium? It is a ‘work in progress’.

In Belgium the study is ongoing, and banks are analysing the risks that are linked to the limit increase. I don’t see the risks honestly in the quarantine period: there is barely someone on the street, and possible fraudsters cannot hide the way they could in the ‘good old days’, even then it was nearly impossible to do so, like I wrote in one of my first blogs, and definitely not worth the effort.

Technically it is a bit more complex than just tapping a button. I asked around and Arnaud Sirtaine of FinFlag and Eric Verackx of Acquiris helped me to better understand what is going on.

It is not that easy as saying: “Banks, please adapt”. It’s not just banks that need to find a consensus, it is the whole industry to need to be aligned and that takes some time:

Increasing contactless transaction limit in the hands of the schemes, they have the decision power. When they agree to lift the limit to for example €50, they adapt the C-TAP (Common Terminal Acquirer Protocol). This will trigger acquirers to adapt the limit on their side, which will update the terminal from the moment he gets online for a transaction.

In Belgium, with mainly co-branded debit cards, this means aligning banks, who are shareholders of the main debit card scheme Bancontact, and Maestro, but also Worldline, CCV and all the other player in the Belgian market. To make sure a transparent en easy explanation to the customers both schemes should align, otherwise you risk to have into a situation where the customer has different limits at different, but similar, merchants.

Perhaps the recent announcement of EBA (March 25) will help to convince Belgian payments sector to lift the limit. They encourage to use the exceptions from Strong Customer Authentication, provided for contactless payments at Point-Of-Sale, so to increase the limit to €50 per transaction and €150 as a cumulative amount or 5 transactions.

If it’s not EBA, perhaps the press release by Mastercard can help. They increased the limit already in 29 different countries (Belgium is not in the list at the very moment, March 25).

The short-term way forward on payment innovations

In Belgium, the Netherlands and Luxembourg we are lucky to have a well-developed digital banking infrastructure, in most of the cases. It fulfils (most of) our needs in a crisis and this also puts innovation in another perspective. Suddenly it becomes clear that most innovations in payments were a ‘nice-to-have’ and not so much a ‘must-have’.

The priorities completely changed in only a few weeks. Innovation is no longer on the agenda, at least not on the short term. Programs that were ongoing and in a final stage may still be completed, other programs will be stopped.

What matters now is to make sure that what works today, still works tomorrow. In a few weeks, bank employees learned to work remotely on a structured way, with meetings through Skype, Zoom and the likes. In these virtual meetings, they figure out how to ensure continuity.

Continuity can be interpreted in the very broad sense here, going from how to deal with broken VPN connections to making sure customers still receive their bank cards and card readers when borders are being closed, and fraud management in unprecedented times and circumstances.

Managing fraud and phishing in time of corona is another big thing that is preventing product teams to spend attention on innovation. Barracuda, a security consultancy company, detected 9,116 email attacks in March (until 23rd) related to Covid-19. This may not sound a lot, but it is again additional work on top of an already unwanted very exception circumstance for financial institutions.

Let’s be clear: the financial services industry is not looking at ‘what’s next in innovation” right now, they are figuring out how to work remotely, and how to keeps the credit risk of their customers under control.

We can only hope that this is only very short term and that quickly banks will understand that the messages of customer experience and UX of the last few years will remain as relevant as before.

Because let there be one thing very clear: digital is the way forward and better digital services will make a change from the moment people can start meeting each other again. These days people a forced to work digitally, to pay digitally and to bank digitally (see also my discussion with Richard Turrin on this topic).

Customers that learn the advantages of contactless compared to cash, will likely still use contactless tomorrow.

Next week I’ll share my point of view on the longer-term impact of COVID-19 on the way we will pay.

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