Overall decrease of consumer spending
COVID-19 is affecting almost every aspect of our daily lives, including how we spend our money. Lockdowns have led to a sharp drop in consumer spending across Europe, and the economic impacts of the pandemic, including unemployment, liquidity shortages and an overall loss of confidence, are likely to see people continuing to save rather than spend. EY analysis suggests that total payment transaction volumes in Europe will fall by approximately 25% during the crisis. For verticals such as clothing, and goods and services, consumption is likely to be only postponed, with spending set to at least partly resume after lockdowns end. However, the losses facing companies in the restaurant, travel and entertainment sectors are more permanent, and may not be made up this year.
With consumer spending one of the biggest drivers of global economic growth, this dramatic fall will have significant consequences. The European Commission has suggested Europe’s GDP will fall by 7.5% in 2020.
Strong shift toward e-commerce expected
Even verticals such as food and household goods, which are seeing sales remain stable during the crisis, are feeling the effects of the shift from instore to online commerce. Quarterly reports from Europe’s major payments players reveal the impact. ACI Worldwide has posted a 74%+ increase in transaction volumes for most online retail sectors, while Adyen reported that it has processed 30% to 50% more retail payments during the crisis than before COVID-19. Worldline has reported a 19%+ increase in e-commerce transactions.
Even after lockdowns lift, we expect that many consumers will continue to favor online shopping rather than returning to physical stores. Once consumer behavior changes, it tends to stick. Getting daily basics delivered has become “the norm,” and people may opt to continue with this convenience even when it’s no longer required. This will have consequences for small, in-store retailers that may be challenged to easily switch to online sales, as well as for their merchant service providers who may struggle to survive the crisis.
The end of cash?
The move to a cashless society was in full swing before COVID-19, but it has been accelerated by the perceived risk of infection via hard currency. Before the pandemic, cash accounted for around 44% of instore payments in Europe, according to Worldpay’s Global Payments Report. Initial analysis suggests this figure fell by almost 10% within a few weeks of the pandemic’s outbreak, with the UK observing a much bigger drop of about 50%.
While it’s too early to tell how the impact of COVID-19 will affect particular online payments going forward, we do anticipate an expected rise in more flexible payment methods. Regardless of COVID-19’s longer-term impact, it’s those payment methods that offer the best user experience and greatest convenience – such as e-wallets – that are most likely to continue to grow their share of the online payments mix.