6 minute read 17 Jun 2020
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How COVID-19 is redefining resiliency in payments

By Jennifer Lucas

EY Americas Payments Consulting Leader

Industry veteran. Payments trailblazer. Visionary strategist. Driven innovator who holds several patents. Passionate about the future of payments and a globally connected ecosystem.

6 minute read 17 Jun 2020

In a post-pandemic world, the most resilient payments players will be those with the flexibility to make dynamic, real-time changes.

The primary authors for this article are Jennifer Lucas, EY Americas Payments Consulting Leader and Patricia Partelow, EY Managing Director, Financial Services Consulting.

Resiliency has always been a key component of modern global payments ecosystems; however, the COVID-19 pandemic has changed our definition of the concept. Previously focused on “system backup,” a resilient payments system or function was one that could continue operating with little disruption in the face of a technical issue, natural disaster or even a terrorist act. Operators worked to achieve and regulators expected systems uptime (99.999%) and the ability of key capabilities “fail over and stay” to avoid any hiccups in payment operations. The aim was not only to ensure seamless operations and customer experience, but also to instill confidence in the stability, and “safety and soundness” of the payments system. 

But COVID-19 has presented a very different type of disruption. Its impact requires us to rethink payments resiliency, expanding the definition beyond system and operational uptime to include the dynamic flexibility of systems, products, processes and the workforce. COVID-19 did not cause a technical or systems outage, but it did create challenges for workforces and for traditional rules of payments. The pandemic’s sharp and sudden impact on many people’s employment and financial circumstances gave rise to a new expectation that these rules should be able to flex dynamically, to accommodate shifting customer needs in almost real-time.

  • Credit card holders were seeking the ability to “skip a payment” with a press of a digital button. This would allow them to deal with a sudden cash flow loss, or to dispute payments for products and services they could no longer use because of COVID-19, i.e., health club memberships or concert tickets.
  • Public health directives to avoid the handling of cash led to a call to quickly increase the transaction limits for contactless payments. In the US, the existing “no signature” requirement for card transactions was reinforced.
  • Store closures meant payments processors were called on to create – almost overnight – new solutions. These allowed merchants to move commerce online or deploy hybrid “click and collect” options that enabled customers to buy online and pick up in-store.
  • Government support and stimulus packages needed to be disbursed in real-time to consumers and business. The rise in digital welfare payments, such as SNAP in the US, put pressure on more payments methods to accept these forms of payment.
  • Payments companies’ call centers previously focused on travel and concierge services were quickly repurposed toward hardship programs and loans.
  • Loyalty programs shifted quickly to accommodate changing customer behaviors and needs. For example, credit card programs that allowed customers to redeem points for travel switched to offering cashback rewards for grocery purchases.

Dynamic resiliency – the flexibility of systems, products and people to accommodate changes quickly – is the “new normal” for payments.

Few schemes have digitized the end-to-end customer experience 

But creating resilient, flexible payments systems is not simple. The challenge is that while many payments systems, particularly in the US, are well functioning and highly resilient, they are built upon archaic technology with limited flexibility for change. Mainframes, disparate data stores, and on-premises platforms, combined with “waterfall” implementation methodologies, create services that function as designed, but cannot change at speed.

Many payments organizations have invested in modernizing the “client experience,” but have stopped short of digitizing this experience end-to-end. For example, it’s easy for customers to go online to onboard, apply for credit and pay, but exception services – claims, disputes, chargebacks and collections – are generally slow to be digitized.

During the crisis, we’ve seen a spike in calls to providers for economic relief services that could easily have been solved with one click of a button. Pockets of modernization do exist – some credit cards were agile enough to almost immediately raise thresholds for contactless payments – however, very few have dynamic products and supporting systems that could fully adjust to the opportunity at hand or end-to-end. For example, how many rewards cards offer customers the ability to change their rewards categories (e.g., from travel to grocery) whenever they want?

COVID-19 has both exposed the inability of many payments providers to pivot to support changing client needs, and highlighted the competitive advantage of those that can. Players that can dynamically respond to situations never previously considered in a resiliency playbook are winning.

Assess and strengthen

In the wake of COVID-19, resiliency in payments will be reframed and expanded beyond systems, facilities and workforce to include flexibility of systems and the ability of products to dynamically change as circumstances shift; for example, to modify policies overnight and use new methods, such as automation and virtual assistants, to deliver new services to customers and merchants.

It’s this focus on the dynamism of products that will change how companies prioritize investments in payments systems modernization. Decisions once based around innovation will become risk-based. The need for resilience – as it’s now defined – will expedite investments in modern infrastructure, the end-to end (front-to-back) digitization of payments processes and product flexibility. Systems and processes must be powered by the technology that enables the agility to act faster, and course correct as needed, such as cloud-based platforms and automation. And, they must be fueled by intelligent data that informs better risk-based decisions.

Going forward, this new definition of resiliency must become part of the payments playbook. Companies will need to apply this definition to thoroughly assess:

  • Payments systems and products
  • Digital customer journeys (end-to-end, front to back office)
  • Workforce agility to respond and change to dynamic, acute situations

Companies should create a prioritization framework to determine which systems, products and processes are tested first, along with what data is needed to help inform the dynamic changes.

Are you prepared for the next payments challenge?

The economic effects of COVID-19 have already hit the payments sector hard, with a sharp drop in consumer spending and a major shift in how and what people buy.

But, the crisis’s impact on payments has had a positive effect on the adoption of digital banking and payments services. In Europe, 75% of all transactions are now contactless, according to Mastercard, while in the US, 51% of consumers paid via tapping a card phone in March and April 2020. About half of these people said COVID-19 had encouraged them to try the technology for the first time. Even in the B2B sector, which has traditionally been slower to adopt digital payments, we see a growing trend toward paying invoices and receiving payments online. Accounts payable Fintech Finexio reported that sign-ups for virtual cards increased 2,000% in a month. Once these businesses experience the time and cost savings offered by digital payments, they are unlikely to return to paper-based processes.

Keeping up with this accelerated digitization of payments will require resiliency playbooks to be updated. Systems, products and workforces must be flexible enough to respond to “never seen before” situations. As organizations prepare for what is likely to be a long period of economic recovery, volatile conditions are inevitable. Payments players that rethink resiliency now through this flexibility lens can be prepared for the next challenge and win a competitive edge.

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Summary

Resiliency has always been a key component of modern global payments ecosystems, but the impact of the COVID-19 pandemic has expanded the definition beyond system and operational uptime to include the dynamic flexibility of systems, products, processes and the workforce. This renewed focus will expedite investments in modern infrastructure, the end-to end (front-to-back) digitization of payments processes and product flexibility. Keeping up with this accelerated digitization of payments will require resiliency playbooks to be revisited and the most successful payments players will be those with the flexibility to quickly adapt.

About this article

By Jennifer Lucas

EY Americas Payments Consulting Leader

Industry veteran. Payments trailblazer. Visionary strategist. Driven innovator who holds several patents. Passionate about the future of payments and a globally connected ecosystem.