The shifting sands of consumer payments in Europe

The world is changing, and so are the ways we pay.

From food and clothes, to fuel and everything else needed for daily life, consumers are making more and more digital payments than ever before. And it seems we are well on our way towards becoming a truly cashless society. Last year saw 3.2 billion mobile wallet transactions made in the UK, a Year on Year growth of 25.5%, with mobile wallet adoption rising to an historic 46% globally.

Undeniably, COVID-19 accelerated changes in how consumers behave when paying for things. And you wouldn't be mistaken for believing the global payments landscape has forever changed. But, what exactly lies ahead for consumer payments in Europe, as we emerge from the pandemic?

Contact-free trumps contactless

One of the biggest consumer trends from last year was the move from contactless to contact-free methods of payments. Consumers began choosing mobile-based payments over physical instruments, such as cash and plastic, even when restrictions eased. And of course, opting to shop – and pay – online from the comfort and safety of their home wherever possible during lockdown.

This trend will only continue, especially with Strong Customer Authentication (SCA) now cemented across Europe and set to be enforced in the UK by 14th September later this year. Under SCA, consumers are required to authenticate themselves via codes sent as text messages, extending the consumer/mobile bond into myriad purchasing experiences. This will pave the way for enhanced customer experiences with user-friendly biometric authentication offered through bank and mobile wallet providers, replacing the text message stepping stone.

While some may find this extra layer of friction clunky at first, given the increasing sophistication of financial crime many will welcome the added layer of security in the long run. This confrontation is age-old in payments, and banks should iron out the creases in the customers’ payments journey as quickly as possible to enable faster adoption. One tangible example of how this can be done is Request to Pay (R2P) - which is currently launching across Europe, ushering in contact-free payments which we will soon see become the norm.

All-the-time Real-time

While banks have indeed been investing in access to real-time payment rails across the continent over the last few years, their current, critical goal for the 2020s will be embedding real-time payments into the customer experience. And a key driving force to achieve this will be the bank-led European Payments Initiative (EPI).

EPI aims to introduce a new card that will enable physical point-of-sale purchases (still seen by some markets to be the prize target) settling funds over the real-time payment rails. Added to this, EPI will enable digital wallet functions, expected to leverage R2P, which will be underpinned by the same real-time payment rails.

As we can see, real-time is no longer solely about the connection between payments. Real-time is about looking at what value can be added to the consumer payments journey – how it can enrich experiences, retain customers or poach them from competitors. While there will likely be a hype curve towards the end of 2021, in the next three to five years, we will begin to see real-time start to manifest itself across most, if not all, consumer payment use cases.

European banks will eye-up “Big Tech”

Over the last few years, we have seen a real uptake in payments activity across major Big Tech players such as Google, Apple, Amazon and Facebook. But organisations categorised as ‘Big Tech’ encompass a lot more than the behemoths of these top players.

Numerous markets are seeing homegrown technology success stories expanding in this space. For example, Grab Pay started off as a Singaporean taxi hailing app, then scaled its service to include a digital wallet with high penetration in other markets through offering experiences in other verticals such as ticketing and hotels.

With such large potential in Europe, there’s an increasing likelihood that banks will get into bed with Big Tech. If and when this happens, traditional banks will get instant, guaranteed access to large pools of consumers through varied channels - like Facebook and WhatsApp. And while this will make banking and payments services really easy to use, it will also open up consumer acquisition possibilities with first mover banks stealing customers from other banks.

For Big Tech, the benefits of working with banks are founded in behavioral economics. Access to payments data permits them to build a more complete picture of an individual consumer, increasing customer stickiness, whilst driving up marketing data revenues.

Moving ahead

2020 accelerated many payments trends that were already starting to emerge. While contact-free and instant payments will not become ubiquitous overnight, they will take a significant step towards becoming the norm in the year ahead.

We can expect to see a continued preference for contactless services, the increased adoption of real-time services in Europe, and European banks collaborating with Big Tech corporations, as we move forward with confidence into a post Covid world.