10 Ways COVID-19 Is Impacting Payments

10 ways COVID-19 is impacting payments COVID-19: What to do Now, What to do Next NOW NEXT

We’re all in this together The potential impact of COVID-19 is becoming clearer and most firms are now in full business continuity mode. Payments organizations should now act urgently to moderate the damage it does to their customers, their people, their partners and their businesses.The focus of their actions will necessarily be short term, but many of the measures they take will lay a foundation for future sustainability and growth. Hopefully, the crisis will also serve to forge stronger, more trusted bonds between customers and everyone in the payments ecosystem. Accenture stands ready to provide whatever skills, capacity, and assistance you may need to deal effectively with this crisis. In this presentation—and in more detail in accompanying documents—we offer a summary of the issues payments firms should address and the initiatives they should consider to support their customers, maintain their business, reinforce their organization, and play a positive role in the economy and society. Let’s show what the industry can offer the world on its best day. 2 10 Ways COVID-19 is impacting payments

Wider industry context: But the industry is in a much stronger starting position to weather the storm. The banking industry’s market value has already Banks are well capitalized, with far higher loss absorption capacity. taken as big a hit as it did Central banks are intervening proactively to 1 support credit markets to prevent a repeat of in the 2008/09 crisis the liquidity domino effect of 2008. Payment systems are functioning well and are considered part of the essential services not subject to shutdown. 3 10 Ways COVID-19 is impacting payments

110 105 Market 100 capitalization 95 COVID-19 trends 90 Market cap down 33% (>$1.3 tn) of the top 90 85 since the outbreak global banks, 80 by event 75 70 2008/09 Ebola 65 2009 Flu COVID-19 Day of event MERS Virus 2012 T = 100) 60 -10 -9 -8 -7 -6 -5 -4 -3 -2 -1 T 1 2 3 4 5 6 7 8 9 10 12 13 14 15 16 17 18 19 20 T=0, COVID-19, February 21, 2020: Authorities reported the first death in Italy. T=0, MERS Virus 2012, May 25, 2015: Middle East respiratory syndrome coronavirus (MERS-CoV) spreads in South Korea. T=0, Ebola, April 14, 2014: Total number of death due to Ebola disease is above 100. T=0, 2009 Flu, April 21, 2009: The Centers for Disease Control and Prevention (CDC) publicly reported the first two U.S. infections with the new H1N1 virus. T=0, 2008/09, October 3, 2008: US Congress passed the Emergency Economic Stabilization Act of 2008. 4 10 Ways COVID-19 is impacting payments

We have identified 10 impacts of COVID-19 on the payments industry which we believe will influence payment providers’ actions today and tomorrow 5 10 Ways COVID-19 is impacting payments Copyright © 2020 Accenture. All rights reserved.

10 impacts of COVID-19 on the payments industry which are likely to influence payment providers’ actions today and tomorrow 1 2 3 4 5 Key payments Consumer spending Payments providers Compressed Cash withdrawals markets are the has dramatically are launching revenues are likely to spiked at first, but most affected by slowed, impacting initiatives to cause payments overall usage has COVID-19 major payments preserve economic companies to significantly revenue streams liquidity rethink short-term declined priorities 6 7 8 9 10 Tokenized Conditions are ‘Embedded’ Consumers and Viable payments payments are highly favorable payment businesses are likely use cases for being encouraged for fraud experiences are to be drawn to blockchain may be more than ever likely to become payment experiences uncovered more popular that offer more control 10 Ways COVID-19 is impacting payments 6

01 2,3 The key global Key Payments Geographies vs COVID-19 Spread payments 14% North America India APAC ) Poland China geographies 1912% Europe 0-2 LATAM of China, Europe and North America 15 Netherlands Africa are the ones most affected by 10% COVID-19 (20 Indonesia Rest of APAC GRA8% C Brazil eu Sweden 6% USA vene UK Rest of Europe R Africa ts 4% Rest of LATAM meny Canada Germany Italy Pa Australia 2% Japan Spain France 0% - 50 000 100 000 150 000 200 000 250 000 300 000 Reported COVID-19 Cases as of 4 April 2020 Size of bubble = Payments Revenue (2019) 7 10 Ways COVID-19 is impacting payments

• Prior to the COVID-19 • Also prior to the virus, China was the second-largest (20 percent global share) and second-fastest-growing payments market. It was the first geography to be outbreak the USA was hit by the outbreak and currently is fourth in terms of the number of cases. the largest payments • Europe has a 14 percent market share (the third-largest geography) but 52 market, with a 31% percentof COVID-19 cases collectively—roughly twice that of the USA. global share.2It is the • In these key payments markets the COVID-19 impact is greatest, interests rates are sharply down, consumer confidence and spending are low, and economic country that has had output is dropping. by far the highest • The distribution of COVID-19 cases worldwide suggests while Asia was hit first, it number of COVID-19 has “flattened the curve” more than North America and Europe. cases. • This suggests a bleak short- to medium-term outlook for North American and European payments revenues. 10 Ways COVID-19 is impacting payments 8

2020 Consumer Payments Revenue Distribution2 02 Projected pre-COVID-19 $23.5 bn $315 bn $170.5 bn $77 bn Consumer spending, 100% the major driver of 90% consumer payments 80% revenues, has 70% slowed dramatically 60% 50% 40% 86% 70% 74% 30% 66% 20% 10% 0% UK USA China Europe exc. UK Cards Domestic Payments Remittances Bill Payments Accounts 9 10 Ways COVID-19 is impacting payments

Payments revenues 53.2% 54.5% UK box office UK daily retail 4 5 have slumpedas sales footfall demand has 99.9% 78% collapsedacross UK restaurant US tourism many key sectors bookings6 spending7 • In major geographies, overall consumer payments revenue is largely driven by spending-dependent streams, especially cards. These streams account for between 66 percent and 86 percent share, with the rest driven by liquidity and account-based revenue. • Demand has collapsed across key sectors of domestic spending (including retail, entertainment and travel) due to social isolation and lower consumer confidence. • Cards and FX providers, especially currency fintechs, are particularly expected to struggle as consumers travel significantly less. • Some spending is expected to move to e-commerce where possible, but less- developed e-commerce sectors will be hit significantly—some by more than 50 percent, initial data suggests. • Even e-commerce is expected to slow after its initial spike, as supply chains dry up and merchants struggle to meet increased consumer demand. 10 10 Ways COVID-19 is impacting payments

The crisis has dramatically reduced sales volumes and 03 payments revenues: • Helping individual and business customers maintain normality will improve Payments customer relations while stimulating the economy—thereby revitalizing key providers are revenue streams. • Many businesses are relaxing or deferring customers’ payment obligations to finding ways to support them and preserve liquidity. support economic For payments providers, these measures include: • Reduced or waived overdraft and liquidity-related fees. recovery • Slashed interest rates. by helping preserve liquidity • Reduced or waived credit card interest or repayment fees. • Reduced or waived digital payments fees. • Reduced access to cash fees. They are also exploring other initiatives to preserve liquidity: • Emergency access-to-cash solutions (see Slide 16). • Interoperable payments platforms for SMEs (see AliPay on Slide 22). • Assistance to governments in distributing financial aid. • Digital wallets or central-bank-backed cryptocurrencies to reach the unbanked (see Slides 17 and 23). 11 10 Ways COVID-19 is impacting payments

3 Credit card fee waiver 70% Increased contactless payment limit 40% How the top 10 Increased cash withdrawal limit 10% UK banks are Waived cash access fees 20% supporting their Access to fixed rate savings accounts 70% Increased interest-free overdrafts 80% 8 Increased credit card/overdraft limits 80% customers Personal or business loan holidays 80% Refinanced mortgages 20% Mortgage holidays 90% Payments providers are positioned not only to support their customers during the crisis… … but also to drive their own recovery with initiatives to preserve economic liquidity. 12 10 Ways COVID-19 is impacting payments

04 COVID-19 is affecting business profitability across most industries, due to developments such as lack of supply, displaced workforces and Expect payments companies to new regulatory barriers. • For payments companies, compressed revenues as a result of reduced rethink short-term consumption are driving the most impact. • As a result, expect them to urgently review their costs to offset lost revenues and priorities and minimize layoffs. reduce costs • Hiring freezes, contractor furloughs and reduced customer services will be common across all industries, including payments. in the wake of compressed • Fintechs specialized in lending, and lacking significant funding to weather the revenues storm, could be forced out of business or to sell to better-capitalized competitors. Expect stifled investment in innovation, but an opening up of opportunities for fintech 13 10 Ways COVID-19 is impacting payments

The crisis is likely to have significant effects on the way Payments payments companies develop and invest in innovation propositions. companies have • Research suggests larger companies cut innovation in the face of choked cashflow; they are 25 percent as likely to invest in innovation during been most affected economic crises.9 • Deal volume and capital in China’s venture capital industry fell by significantly approximately 60 percent during the outbreak, and similar downturns in compressed the venture capital and private equity markets are expected globally.10 • However, fintechs and startups, if able to raise the necessary capital, can revenues capitalize on the unique conditions created by COVID-19; digital, embedded and mobile propositions in particular are expected to succeed in a remote-working economy. • The 2008 financial crisis birthed today’s fintechs; could COVID-19 pave the way for a new generation? 14 10 Ways COVID-19 is impacting payments

Key factors are driving customers of all personas away from physical 05 payments and cash: • A significantly smaller proportion of payments are being made in-person as isolation keeps customers at home. Cash usage is • Those reliant on cash also tend to be those who are vulnerable and more encouraged to isolate due to COVID-19. declining rapidly • Customers are being advised to avoid cash for hygiene reasons and many businesses now discourage cash or do not accept it. A spike in cash withdrawals early in the crisis, likely as a result of hoarding or a ‘just-in-case’ mindset, has not translated to increased overall usage. Cash traditionalists are now looking for alternative payment methods: • Checks appear to be an early refuge, especially for customers looking to pay helpers, but they aren’t a viable long-term solution. • Contactless cards and digital wallets are the natural successor for those who 50% have access to them. UK cash usage For now, payments providers (especially banks) are scrambling to equip 17-25 March 202010 customers who are unable to use established alternatives: • In the long term, COVID-19 will arguably contribute significantly to the continued decline of cash usage in the UK, whilst also highlighting the reliance the socially 15% and financially excluded still have on it. • Therefore, the solutions brought to market today may be pivotal in replacing cash UK cheque deposits in the UK for good, especially if they offer inclusivity to those currently unserved 17-25 March 202012 by preferred digital banking options. 15 10 Ways COVID-19 is impacting payments

Vulnerable customers are unable to access Cash-to-door Customers are mailed cash requested via cash, yet need to telephone banking. pay helpers. One-time Customers phone in to request a one-time Banks are ATM codes code to retrieve cash from an ATM. working quickly Prepaid cards Customers request and prepay purpose- to give them specific cards which can be shared. options,and are exploring… 16 10 Ways COVID-19 is impacting payments

Digital wallets (e.g., Apple Pay®) have recently become 06 more popular in the UK, echoing a global trend of tokenizing payments information in NFC-enabled phones. Expect an increase in the adoption of These wallets primarily offer an easier customer experience for peer-to-peer, point- of-sale and e-commerce payments journeys by removing the need to enter details tokenized payments or PINs. Most also don’t have contactless limits, thanks to the two-factor authentication inherent in fingerprint-enabled digital wallets. instruments Their adoption is likely to accelerate after the crisis: such as digital wallets • Customers will use e-commerce for more of their small and regular transactions, which are far simpler through ‘one-touch’ wallet payments. • In POS applications, digital wallets require less interaction between customers and public touchpoints and neither PINs nor touching a card to a merchant reader is needed. • The ability to prove identity through digital wallets will have increasing use cases in a remote working and living environment, such as onboarding customers or combatting transaction fraud. • Analytics and financial management tools will be in greater demand as more control over payments is sought. These adoption trends are coinciding with Open Banking and the New Payments Architecture, and are expected to drive customers to digital wallets. • Payments providers will increasingly need to cater to customers who expect more interoperability between their phones and payments systems, and this may result in increased substitution of cards by alternative payment solutions. 17 10 Ways COVID-19 is impacting payments

07 Increased uncertainty and The conditions Increased need customer vulnerability create of uncertainty for certain goods and panic, such and services favorable as those created lower consumer by COVID-19, diligence in conditions are conducive ! procurement for fraud Regulatory bodies to fraud: and companies Confidence actively relax levels are lower certain fraud- and anxiety is mitigating £1M higher, making measures where individuals more the immediate UK-recorded COVID-19 susceptible to need outweighs fraud losses (20 March)13 social the fraud exposure (e.g. engineering increased contactless limit, focus on business continuity, cash alternatives) Unusual circumstances Vulnerable customers are reduce suspicion of particularly exposed as they contactfrom official are pushed to new payment bodies, or unknown methods and asked to rely on parties offering help or and trust third parties advice 18 10 Ways COVID-19 is impacting payments

Payments companies should In an extreme cost-cutting environment, actively be aware of the mitigating such exposure is an additional challenge. Communicating proactively with customers, particularly increased fraud vulnerable customers, will be key to preventing short- their customers, term losses. Longer-term investment in fraud detection, especially if and by extension other automated and e-commerce trends come into they themselves, effect, will be increased. are exposed to. 19 10 Ways COVID-19 is impacting payments

• Compressed revenues and restricted cashflow are not only impacting businesses; 08 consumers, in the wake of layoffs, pay cuts and furloughs, will look to manage their outgoing costs significantly more closely post-COVID-19, just as businesses will. The need to manage cashflows • Request-to-paywill enable individuals and businesses to request money from each more tightly may encourage other on an individual credit basis; appetite for direct debits will wane as payees can respond to individual requests and not commit to multiple scheduled payments. adoption of • Payments providers and card companies in particular will need strategies to address this potential loss of revenue. payments TM • Services that minimize up-front payment, such as Klarna , return control of experiences cashflow to users and will be in high demand if they are easy to implement. • Likewise, intelligent financial management tooling, enabling greater insight into focused on control spending and access to services, will receive a boost. This applies to individual customers, but even more to businesses and SMEs which will struggle the most with cashflow issues as a result of COVID-19. • Finally, banks will have a greater need for real-time transaction-banking dashboards that provide intelligent insights and solution options to control cashflow and minimize costs. 20 10 Ways COVID-19 is impacting payments

As payments become more digitalized, payment experiences are being ‘embedded’ into customer purchasing journeys: ® 09 • Non-financial services providers (e.g. Starbucks ) are offering customers mature payments experiences in-journey. With limited in-person purchasing • This extends to emerging trends such as smart appliances (Internet of Things), voice of essentials and food, recognition, ambient sound triggers, RFID and even brain-computer interfaces. • Applications of the above capabilities could enable customers to reduce friction in identifying and purchasing essentials. ‘embedded’ payments may COVID-19 not only requires customers to cut down on traditional purchasing journeys, become the norm but for vulnerable customers to avoid them altogether. The effect of this on the food delivery market is already evident; both food and non-food online sales are increasing, with established-store sales decreasing. COVID-19’s impact on demand for essential-goods deliveries is likely to: • Catalyze long-term strategies to offer embedded payments experiences that automate repetitive purchasing. • Create opportunities for fintechs to deliver innovative solutions to meet the demand. If successful, this is likely to drive payment volumes to new heights as automated micropayments become the norm. 21 10 Ways COVID-19 is impacting payments

70% 60% Increase in 60% 50% appetite for food 40% 40% 34% delivery services 30% 30% 26% since COVID-19 20% 10% outbreak in the 10% UK14 0% 18-34 years old 35-54 years old 55+ years old Already increasing delivery frequency Plan to increase delivery frequency TM Example: AliPay , the world’s largest digital wallet app, has launched a post-COVID-19 initiative enabling embedded payments in third-party applications through mini-programs. These will enable contactless payment services across industries including medical care, food delivery and logistics.15 22 10 Ways COVID-19 is impacting payments

• Blockchain, or distributed ledger technology, offers the most value in ecosystems 10 where trust is declining or absent and where records and tracking still need to be secure and agreed between parties. New use cases • Beyond crypto-currencies, blockchain has not significantly disrupted the payments for blockchain and space despite bursting into mainstream awareness in 2017. • This is largely due to the lack of value it offers over incumbent ‘centralized’ database crypto-currencies and record-keeping technologies where trust is not a factor. • The COVID-19 outbreak is likely to erode trust between participants in payments are likely to emerge ecosystems, particularly in trade finance, where banks and governments are less trusted and blockchain-based solutions to track assets and payments may thrive. China is accelerating the launch of its Central Bank Digital Currency in the wake of COVID-1917 23 10 Ways COVID-19 is impacting payments

COVID-19 has caused the need for economic stimulus in the form of direct payments to individuals and the slashing of interest rates Contour, the globally. This has given rise to concerns about the speed at which governments can reactand raised the likelihood of negative blockchain trade interest rates. finance platform • Global interest regarding transmission of COVID-19 on physical banknotes has caused a number of central banks to take action.17 co-developed by • Central Bank Digital Currencies (CBDCs), which recently have been explored major banks, will by many major governments, address these concerns: • CBDCs can apply negative and variable interest rates and offer a ensure trades go broader toolkit for monetary policy, which in stressful economic scenarios make them appealing to central banks. ahead even in a • Industry leaders recognised the potential for CBDCs to distribute funds, and US Democrats included a proposal for a CBDC as part of 16 the COVID-19 stimulus bill, including the ability to more easily crisis distribute universal credit.18 10 Ways COVID-19 is impacting payments 24

What payment providers should look to do NOW… • Establish a full ‘war room’ that coordinates all aspects of the crisis response. • Actively look to support customers and businesses as they weather the storm. People will remember how their providers responded in crisis; this will be a unique opportunity to grow trust and deepen relationships with customers. • Investigate resilience of payment operations and ensure processing remains intact, with a skeleton crew in place and remote tooling. • Protect customers through proactive advice to counter fraud. • Find ways to increase liquidity in the economy, such as deploying emergency access to cash solutions, making available simple e-commerce payment platforms to SMEs and businesses, and helping governments disburse aid. • Rethink short-term priorities and reallocate staff and expenses to short-term needs. • Don’t let perfect be the enemy of good: Communicate the intention early to support customers, and then work through the operational details. 25 10 Ways COVID-19 is impacting payments

…and what they should look to do NEXT • Accelerate plans to reach unbanked or unserved customers who are increasingly unable to use physical payments methods. • Explore capabilities to counteract the new kinds of fraud that are causing additional challenges to customers and increased costs. • Push tokenization and digitization of physical payment methods. • Explore capabilities that give customers and businesses more insight and control over their finances and payments. • Drive interoperability of core payments capabilities, embedding into essential customer journeys, reducing friction and enabling customers to progress with their businesses and lives. • Explore new blockchain use cases and co-create solutions targeting real pain points. 26 10 Ways COVID-19 is impacting payments

Contributors Sulabh Agarwal Margaret Weichert Graham Rothwell Will Hay Global Payments Lead North America Payments Lead APAC Payment Services Lead UK Strategy & Consulting Payments [email protected] [email protected] [email protected] [email protected] 27 10 Ways COVID-19 is impacting payments

References 1 Source: Accenture Research analysis of S&P Capital IQ data 2 Accenture Research revenue analysis 3 Accenture analysis of European Centre for Disease Prevention and Control (ECDC) data 4 British Film Institute (BFI) 5 https://www.spring-board.info/benchmarks/benchmark/latest-daily-footfall 6 OpenTable 7 Oxford Economics analysis 8 Accenture market analysis 9 Birkbeck University Of London Research 10 https://pitchbook.com/news/articles/coronavirus-updates-latest-news-and-analysis 11 Link via The Guardian 12 Accenture client reporting 13 National Fraud Intelligence Bureau via The Independent 14 https://www.statista.com/statistics/1107212/covid-19-food-delivery-frequency-in-great-britain/ 15 https://www.mobilepaymentstoday.com/news/alipay-launches-digital-transformation-plan-amid-coronavirus-response/ 16 https://cointelegraph.com/news/hsbc-blockchain-platform-will-keep-trade-finance-smooth-despite-coronavirus 17 Bank of International Settlements: https://www.bis.org/publ/bisbull03.pdf 18 https://www.forbes.com/sites/lawrencewintermeyer/2020/03/30/covid-19-economic-stimulus-get-money-to-people-faster-with-digital-dollars/#7e2470d131fc 28 10 Ways COVID-19 is impacting payments

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