Demand and decline in the payments industry

ChartIt’s difficult to find—much less write—a news item that doesn’t open with or relate to the coronavirus pandemic. And for good reason. It has pretty well invaded every aspect of our lives.

About a month ago, I wrote about predicted effects of the pandemic on digital payments. Though this is by no means the way any moral person would want to grow the category, the fact remains that, where possible, what follows from self-sequestering is moving needful purchases from physical to virtual retail locations, and paying by digital means. 

Those who can telecommute are fortunate and in the minority. Self-sequestering has put a good many people out of work, which means they aren’t receiving pay. That can be devastating news for many, and especially for those living paycheck-to-paycheck. According to MarketWatch

Depending on the survey, that figure runs from half of workers making under $50,000 (according to Nielsen data) to 74% of all employees (per recent reports from both the American Payroll Association and the National Endowment for Financial Education.) And almost three in 10 adults have no emergency savings at all, according to Bankrate’s latest Financial Security Index … The Nielsen study found that one in four families making $150,000 a year or more are living paycheck-to-paycheck, while one in three earning between $50,000 and $100,000 also depend on their next check to keep their heads above water.

If those numbers are to be believed, the $1200 from Uncle Sam that should start showing up about now will hardly make a dent for the majority of Americans. So while reliance on digital payments may increase, spending will decrease, and use of digital payments will decrease with it.

No less than McKinsey predicts “a dramatic decline in payments revenue as the Coronavirus crisis hits economic activity across the globe.” That’s according to a recent Finextra article, which goes on to say:

Instead of growing by six percent, as projected by the consultancy’s 2019 global payments report, activity could drop by as much as eight to 10% of total revenues, or a reduction of $165 billion to $210 billion—comparable to the 10 to 11% revenue reduction in the wake of the global financial crisis in 2008-09.

The decline in payments is the result of across-the-board declines in other lines of business, and not just retail. USA Today lists a number of hardest-hit industries: gambling establishments (notwithstanding Las Vegas Mayor Carolyn Goodwin’s protests over shutting down casinos due to, as she attempted to trivialize it, a case of the “flu”), airlines, hotels, theaters, live sports, cruises, shipping, film production, automakers, oil and gas, retail, technology, conventions, food service, theme parks, gymnasiums, construction, and transportation. 

Yet this is nonetheless a time when the payments industry must rise to what demand there is, and to meet the challenges that come with it. Privacy and security concerns haven’t gone away and may well be on the rise.

Open banking provides one example. Next month marks the two-year anniversary of mandated open banking in the UK and, as I wrote at the time of its one-year anniversary, it opened to something of a fizzle. But consumer demand for the ability to survey accounts across multiple institutions from a solitary app has been heating up of late. And though open banking is regulated in the UK, it has more or less blundered forth on its own in the United States, with individual apps and institutions improvising rules on the fly. This has more than a few people concerned, as PYMNTS.com reports:

Merchants may have lingering questions over the shifting regulations in the U.S., but rising data breaches and online hacks are evidence of the necessity of the rule. Fraudsters are finding new ways onto online platforms using data filched from numerous large-scale breaches in the past two years, leading multiple states in the U.S. to create online privacy and sharing rules to block their entry. Merchants must still provide the personalized support that consumers are used to, however, even as multiple states in the country seek to shore up their online transaction rules in order to keep out these bad actors.

Steve Cocheo, The Financial Brand’s executive editor, confirmed as much in his excellent piece, “Fight Over Consumer Data Ownership Pits Banks Against Fintechs”:

In the absence of anything like the ‘open banking’ regimes put in place in Europe, the U.K., Australia, and elsewhere, in the U.S. these connections have pretty much evolved ad hoc as competitive innovations. 

Cocheo suggests that the situation “may soon change,” listing as factors “Increased regulatory attention,” “Growing concerns over privacy and fraud protection,” “Increasing competitive pressure, “Frustrations over current technological approaches,” and “Increasing desire among consumers for a complete picture of their finances.”

(There is simply too much of worth in Cocheo’s article to excerpt here. I prefer linking you to it and urging you to read the whole thing.)

Another concern on the rise is domain spoofing. Domain spoofing isn’t new, but the pandemic combined with human altruism provide it unusually fertile ground. Vox reported that nogoodniks sent out fundraising emails from who.int, the World Health Organization’s address. At the time the article was written, WHO had neglected to set up email authentication protocols such as dmarc to prevent misuse of its email address. (So had the White House. For that matter, over 85 percent of organizations registered with dmarc still haven’t set their policy to reject or send to spam spoof emails.) 

Domain spoofing makes victims even of consumers who know to check email addresses. Now might be a good time for financial institutions to double-check to ensure that their own email authentication protocols are in place.

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