The Card Conundrum: Businesses Must Get Innovative with Payments In Times Of Economic Hardship

In the U.K., payments with banknotes declined by 50% between 2010 and 2019 to account for just 15% of all transactions, while card payments across Europe soared from five billion to more than 46 billion payments per year since the start of the millennium.

The bottom line is that the way consumers want to pay for goods is constantly changing and this is likely to mean an increase in the use of digital payments, mobile wallets, online and mobile transactions and real-time mobile P2P payments. It is important, however, not to look at these figures in isolation because, as you might have noticed, there is a lot going on in the world right now. 

Global, national, and regional changes in circumstances are having a major impact on the evolving payments landscape with recent research showing that the societal and economic shifts over the past 12 months have led to increased financial concerns - higher inflation, energy bills, and so on - which is having an impact on the daily lives of individuals and driving changes in what people may expect from their financial services providers.  

Evolving consumer habits 

Consumer spending and payment habits are changing.

During the cost of living crisis, debit card usage continued to be popular but is now facing competition from credit and prepaid cards as more people are borrowing to cope with rising costs. A recent survey revealed that 57% of people have taken to using credit cards to make ends meet over the last year. The research also found that, as consumers continue to seek more flexible alternatives to traditional credit, many are starting to explore alternative options like Buy Now, Pay Later (BNPL). More than half (56%) of consumers surveyed have increased their use of BNPL solutions, with this figure rising to almost two-thirds (63%) among Gen Z.

The pressure is now on merchants to consider whether the way in which they’re taking payments is meeting the full range of their customers’ needs and preferences. For example, point of sale providers need to ensure that those buying products can use their preferred payment methods and embrace new devices and transaction technologies to ensure they are attracting and sustaining their customer base.

Providing frictionless payments, for example, where you can check out using a stored card in a wallet or identify yourself in a virtual way, is vitally important and is what many consumers have come to expect. Merchants need to ensure they are providing this capability to avoid consumers abandoning clunky check out processes half way through (for instance, needing a card to physically reference or requiring more than one device for identification). With that being said, in order to cater for all consumer demand, businesses must also acknowledge that quite a few people find it very hard to cope without cash, so this still needs to be an available payment option. 

Fortunately, due to emerging technology, merchants can now enter the BNPL space relatively easily. Through card issuing platforms, a digital card with a unique 16-digit code can be created to provide the merchant with payments from the consumer instantly, while allowing customers to pay back the amount to a retail bank service over time. This ensures merchants can meet consumer demand to have alternative ways to buy and pay for products.

Cashless payments can also benefit businesses themselves, due to their convenience and security. Dealing in cash only payments is expensive and adds another layer of complexity to store operations such as the time spent cashing up, or needing the correct change. A 451 Research graph which can be found in this article highlights that merchants are seeing benefits from accepting digital wallets in mobile and online sales channels such as improved checkout speed (61%) and increased repeat business (51%). 

A world of cards

Established businesses and retailers are increasingly supplementing their existing models with innovative payment products and integrated payments solutions to meet changing consumer demand. The rapid emergence of ‘embedded finance’ - essentially the placing of a financial product in a non-financial customer experience - is something which has been offered by non-banks for years via private credit cards at retail chains, or airlines, but is now starting to streamline a wider range of financial processes. 

For instance, where previously a person would have needed to visit a high street bank to secure a loan for a substantial purchase, or a business buyer may spend hours on paperwork in order to access trade credit, now these services are being made available easily at the point of purchase through embedded finance. 

Other emerging payment technologies can be beneficial to merchants as well, ensuring they can get access to their earnings more quickly by allowing funds that have been received on the acquiring side to be accessed by the merchant instantaneously. This means that merchant spending can still take place in times of hardship. 

The reality is that the world of cards, virtual cards, and modern payments is likely to become more complex and increasingly digital as consumer demand continues to change. Going forward, payment providers should enhance their focus on serving their customers’ and sellers' financial goals. This means that  merchants and retailers must be equipped with the skills and knowledge needed to take advantage of the global migration to non-cash payments, increasing the use of different cards, and new practices such as BNPL.