Payments 3.0: Will Covid’s Impact Last?

Covid-19 has changed shopping and payments behavior, and a big question facing the industry is: How long will those changes last?

Most conversations about the pandemic start with, “When things get back to normal.” But all signs point to a new normal rather than a return to a pre-pandemic state. While that might be a disturbing thought, it could lead to improved relationships with customers and new payments products.

Big shifts in daily lives can provide an opportunity to make big changes. Kristen Berman, the cofounder of Irrational Labs, a behavioral economics nonprofit, explains that people change their habits when their environment changes. The pandemic has forced changes—working from home, for example—so the stage has been set for changed habits because peoples’ routines have been broken.

“When people are able to break out of their normal environments, then they can change their habits,” Berman says.

Evidence of such changes can be seen in research from the National Retail Federation that found that 58% of retailers said they can accept a contactless card payment in 2020, up from 40% last year. It also found that 69% of retailers said that contactless payments had increased since January.

Retailers expect that customers will continue using contactless payments, shopping online above pre-Covid levels, and using options like curbside pickup long after the pandemic ends, said Leon Buck, the NRF’s vice president of government relations, banking, and financial services.

“Retailers understand their customers—everybody wants faster, safer, and easier [shopping experiences], and they are going to accommodate it,” Buck said.

Berman, who is also a cofounder of the Common Cents Lab, a Duke University initiative focused on financial well-being for low-to-middle-income Americans, said now is a good time for payments companies to consider new ideas. People’s lives are disrupted, so they  are in a mindset open to change.

One area in particular that may be ripe for change is financial health.

“While it seems like the worst time to be pitching people financial-health interventions—whether it be paying down your credit card or changing banks to avoid fees—this actually may be a very nice time to do it, because now more than ever people realize that their financial struggles could hit them,” Berman said.

This trend may already be showing up in the data. Credit card balances fell by $76 billion in the second quarter, according to the Federal Reserve Bank of New York.

As we all emerge from our Covid-19 shells and return to workplaces, that will be another inflection point for behaviors as environments change again, Berman says.

Of course, pandemic behaviors may have their own aftershocks. In May of 2020, the Federal Reserve surveyed 2,767 people who had completed its 2019 Diary of Consumer Payment Choice to ask how things had changed. Although 63% of consumers said they had not made an in-person payment since March, the average amount of cash that respondents were storing had nearly doubled from $275 to $534. It may be that we will see a spike in cash use when people begin making in-person payments again, as they will have a lot of cash to use.

Payments providers, retailers, and financial institutions have opportunities to help shape their customers’ behavior. As I have pointed out in earlier Payments 3.0 columns, many of the problems that have arisen from the pandemic are chronic issues that have been made acute.

The uncertainty has given us an opportunity to make course corrections that can lead to a profitable future for everyone. But we’ll need to rise to the challenge and begin thinking long term.

—Ben Jackson, bjackson@ipa.org