Saying that the coronavirus contagion has affected every industry would be an understatement. Its butterfly effect on the money flow is enough to contaminate the present and prospects of the global digital payments market.

It is understandable to non-specialists, too, that payments directly depend on transactions, and transactions depend on the spending power of individuals. And COVID-19 has gripped to choke not only on the micro-level, but the macro-economic scenario is also on a ventilator.

Already before the pandemic, the global digital payments market has been very active in recent years. Double-digit growth rates, astronomical valuations, and unparalleled technical advances are only a few of the metrics. However, we cannot simply overlook the financial impact and a minor volume loss caused by COVID-19.

Read on to find the various facets of COVID-19’s impact on the Payment Industry.

Significantly reduced earnings have had the most impact on the global digital payments market.

The recession is expected to significantly impact how payment firms grow and invest in new product offerings.

• According to research, bigger businesses slash creativity in the face of cash flow constraints, and they are 25% less willing to spend on innovation during economic downturns.

• During the pandemic, China’s venture capital sector saw a 60 percent drop in deal value and capital, and comparable declines in the venture capital and private equity industries are anticipated globally.

• Fin-techs and entrepreneurs, on the other hand, can still take advantage of the specific circumstances provided by COVID-19 if they can collect the requisite capital. Interactive, embedded, and mobile propositions, in particular, are anticipated to prosper in a remote-working economy.

• Point to Ponder: Today’s fin-tech arose from the 2008 financial crisis; will COVID-19 pave the way for a new generation?

Present Players’ Positions Would Change the global digital payments market

Having proven digital platforms by which they could reach out and help SMEs was a pillar of their ability to provide timely assistance – and one of the main reasons that several central banks were often found to be missing in this region.

Traditional supply chain lines have been blurring for some time now. Along with that, vendors that have provided successful help to SMEs (small and medium enterprises) have the potential to become trustworthy merchant banks for them in the future. It makes no difference if these providers are conventional local banks or foreign PSPs in this regard.

Cash Will Take the Backseat in the global digital payments market

Cash’s survival is being called into doubt as a result of the pandemic. The coronavirus has reduced the usage of cash by half. Thus, the situation has hastened the movement toward increased use of automated or contactless payments. 

Indeed, the World Health Organization also recommended the usage of contactless payments. The WHO has backed multiple policymakers’ initiatives to shift from cash to digital payments to expand financial participation. Digital modes of payment also improve transaction transparency and provide citizens a credit background.

Some groups, though, are concerned about going cashless. Since the disabled and elderly depend on it, New York City has passed legislation prohibiting cashless brick and mortar companies among other cities in the United States.

Some people claim that having cash in hand makes it easier to budget their expenditures. Furthermore, at the onset of the pandemic, there were record cash withdrawals in both the Eurozone and Russia, as citizens were concerned over banks going bankrupt.

Central banks are concerned with cashless economies because of the implications for monetary policy. Central banks are increasingly lacking in the resources they need to influence the economy (negative interest rates being the most apparent feature).

Remittances from Abroad Majorly affect the global digital payments market

The COVID-19 pandemic has had a significant impact on international remittances. As a consequence of the pandemic-related epidemic, global remittances dropped by 20% in 2020. This fall is thought to be the most severe in modern memory. The primary cause of this downturn is a decrease in foreign workers’ incomes.

This is a concerning circumstance since almost three-quarters of all COVID-19 incidents have been recorded in places where about 75 percent of all world migrants live. Furthermore, remittances sent by workers in these countries account for up to 90% of total remittances.

These employees are among those who are at risk of losing their jobs as the home nation experiences an economic downturn. If we look at remittances from low and middle-income countries (LMICs), we can see that they have decreased by around 19.7% to $445 billion. This loss accounts for a significant portion of the financial existence of many poor households.

Remittances have been critical in pulling millions of poor and middle-class families out of poverty in developed countries. They’ve increased their nutritious earnings. Increased school expenditure and a reduction in child labor policies are both linked to the remittance fund.

The Negative Financial Impact of Decreased Remittances

A drastic drop in remittances would undoubtedly negatively impact these households since it will cause them to divert their income away from the previously listed areas to meet urgent subsistence needs and food shortages.

“Remittances are a keystream of income for developed countries,” says David Malpass, Group President of the World Bank. The recent global crisis brought about by COVID-19 is wreaking havoc on people’s willingness to return money home. The effect reflects the importance of reducing the period it takes for industrialized economies to recover.

Remittances assist households in meeting their fundamental requirements for food, housing, and other necessities. 

The Financial Impact of Digital Transactions in the global digital payments market

Many digital wallets (such as Apple Pay®) have recently grown in popularity, following global tokenizing payment details in NFC-enabled phones.

By eliminating the need to insert information or PINs, these wallets make peer-to-peer, point-of-sale, and e-commerce purchase journeys simpler for customers. Due to the two-factor authentication built into fingerprint-enabled digital wallets, most don’t have contactless restrictions.

Following the crisis, their usage is expected to accelerate:

• Customers can use e-commerce for more of their tiny and daily purchases, which will be made even easier by introducing “one-touch” wallet payments.

• Digital wallets need fewer interactions with consumers and public touch-points in POS apps, and no PINs or card contact with a vendor reader is needed.

• In a remote working and living world, the potential to prove identification by digital wallets would have increasing use cases, such as onboarding clients or combating transaction fraud.

• As more leverage of transfers is pursued, analytics and financial reporting solutions would be in higher demand.

• Customers are projected to flock to digital wallets due to these adoption patterns, which coincide with Open Banking and the New Payments Architecture.

• Payments services would increasingly need to appeal to consumers who demand greater interoperability with their phones and payment networks, which may lead to a rise in the use of alternative payment mechanisms in place of cards.

Final Words

Even though this is still a difficult moment, we have witnessed an increase in digital payments and a variety of companies going digitally.

The COVID-19 pandemic drastically altered customer buying habits and sparked significant reform in the fast-paced global digital payments market.

Without the potential of technology, unprecedented growth in internet sales rates and digital disruption led by improvements in consumer behavior will not be feasible.