Henrik P Löfgren

Partner Centigo UK

The black swan impact on the Payments industry

May 26, 2020 7:53:00 AM

Did you ever hear about a black swan? The black swan theory is used as a metaphor for an unpredictable event. A theory based on thousands of observations of white swans – hence no swans can be expected to be black. Until a Dutch explorer observed a black swan, in Australia.

Some argue that the coronavirus outbreak is a black swan whilst other experts claim it is not. They argue that it was just a matter of time until we were going to get a virus disease like this, spreading across the globe. In any case, what we all can agree upon is that the outbreak is having a major impact on us all, and that our digital transformation is accelerating for both organisations and individuals. But what does it mean for the Payments industry?

Shift in transaction types and volumes

A consequence of the coronavirus is a clear shift in the type of processed transactions and volumes. Before the outbreak, the high street was already struggling and feeling the pressure from the growth of e-commerce. With the outbreak and all closed stores, consumers have been forced to shop online, which has accelerated this trend and rapidly transformed consumers’ shopping habits.

Both merchants and consumers have become less willing to use cash, a behaviour also encouraged by the UK Government. When the in-store merchants start to open again, they can expect an increasing demand for cashless transactions such as contactless payments. As a direct response to the virus, UK finance has from the 1 April increased the limit for contactless payments from 30 to 45 GBP. Merchants will successively be able to offer the increased limit as they update their payments systems.

A possible scenario is that consumers start to decrease their in-store shopping frequency, merging more purchases into a single visit to the store, leading to decreased transaction volumes but higher transaction amounts. In this case, merchants should review their price plans to ensure that their pricing is fit for the type of transactions they process.

Increased appetite for seamless payments

Furthermore, to avoid unnecessary contact between consumers and store personnel, merchants and payment providers can expect an increased appetite for more seamless checkout processes. Biometric and voice payments will grow in popularity, such as:

  • Tencent’s facial recognition payment method which processes a payment by scanning the face of the consumer
  • Honda’s in-car payment solution which uses voice control and AI technology to let the driver pay for fuel, parking or food orders
  • Amazon is also developing a checkout process called “wave to pay” where the consumer is identified and connected to their credit or debit card by the shape of their hand

Reaching what is called “invisible payments” provides the ultimately frictionless and safe payment process. Existing well-recognized examples are Uber and Deliveroo.

Besides the fact that our future payment methods need to offer smooth and seamless POS (Point of Sale) checkout processes, they also must support omnichannel operation and provide strong e-commerce functionalities. Payments providers with frictional or outdated solutions will not be able to cope over more modern and innovative competitors.

Easing of regulatory change

Regulatory authorities such as FCA do what they can to support the industry. For instance, the due date for implementing strong customer authentication (SCA) has been postponed with 6 months, with a new deadline the 14 September 2021. Last week FCA also released proposed guidelines for Payments providers, to safeguard customer funds during the pandemic.

Another example is the Cross-Border Payment Regulation that makes currency conversion rates transparent, which came into force during April. The European Commission has announced a higher grade of flexibility in regard to implementing this, due to the extraordinary situation. These types of responses will ease the pressure and let payment providers and merchants focus on more urgent needs, such as securing continuity of their businesses.

Stay positive and transform into the future

Despite measures taken for organisations specifically or the industry in general, both incumbents and challengers are feeling the pressure of decreased revenue and disrupted growth journeys. For instance, challengers have reported a decline in new customer registrations, and both domestic and cross-border transaction volumes suffer from decreased spending and travelling.

Still, there are several reasons to stay positive. Digitalisation is accelerating which may increase the interest in innovative payments providers, creating opportunities for new business models that benefit all parties in the ecosystem. We have also seen payment organisations offering their services for free and collaborating for the greater good.

Furthermore, there is a unique opportunity to transform organisations to meet the new digital reality, and to be prepared for future uncertainty and fast-paced change. Organisations should take the chance to not only innovate their products or services, but also to carry out “internal innovation” to re-organise themselves to become fast-moving, responsive and agile. To be a leader and prosper, this will be required even if it is a black or white swan beyond the next horizon.


Do you want to discuss more about the Payments industry, digitalisation or transformation? Please contact me Henrik.p.lofgren@centigo.co.uk.


Tags: Financial_Services Innovation Centigo_UK FinTech Payments