Cross-border payments are at a new crossroads following COVID-19

Consumers are increasingly ready to embrace digital payments, mobile e-wallets, touchless and contactless payments not just because of speed or convenience, but because of COVID-19. The pandemic has further reinforced the need for businesses to undergo digital transformation, which is pivotal in the digital economy.

Cash is no longer king; ecommerce is the new king. Consumer thinking and behaviour in the digital economy have been forced forward by several years in just the last six months as a result of the pandemic. As economies across the globe start to emerge from the COVID19 pandemic, e-commerce businesses are also beginning to refine their recovery strategies. The value of crossborder payments is not expected to exceed the 2019 levels until the end of 2022 or even 2023 because this particularly deadly virus lacks natural immunity and does not yet have a vaccine.

Estimates of the decline in cross border transaction activity for 2020 vary extensively from 20 percent to 30 percent, depending on the business vertical. In certain segments, for example, corporate travel payments have taken a significant step backwards.

There may still be uncertainty as to the persistent pattern of a drop and the upsurge of the number of virus infections, local and regional lockdowns, but there remains an appetite to plan a new future. COVID-19 has meant that e-commerce businesses have to go back to basics and re-examine the issues that surround friction, checkout process, conversion rates, and the need to ensure long term customer loyalty. Some of the challenges in the wake of the pandemic include:

• Merchants and businesses will be more cost-conscious when deciding their payment strategies – cross-border payment providers must offer a compelling value proposition.

• With reduced cross-border traffic, localisation of payment acceptance is required to support local payment solutions, local payment options, and personalised digital payment journeys.

• Faster adoption of real-time payments will accelerate the movement of money between consumers and businesses and business to business (B2B).

• Omnichannel experiences and digital engagement with customers are now table stakes.

• Open Banking and instant cross-border payments are encouraging the introduction of more innovative services.

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The crisis has certainly placed greater importance on digital and mobile, but that will not be enough to ride the storm. Economies of scale, M&A, cost efficiencies, and new pricing strategies will be the new normal to secure new revenue sources. Technology is pushing the boundaries of how consumers shop and merchants cannot afford to overlook these changing dynamics if they want to win and retain customers. Creating new customer experiences is a core component in both driving overall e-commerce growth and improving conversion. Personalisation of the customer’s journey will be able to generate relevant offers and discounts based on consumer spending habits and loyalty.

The e-commerce conversion rate, for example, is an area that businesses have always found to be no small undertaking to improve. The proportion of successful transactions relative to the number of shoppers who make it to the payment page is a constant key performance indicator.

Even the psychology of colour directly influences the consumer’s behaviour at the payment checkout. Should the ‘buy now’ button be red, yellow, blue, or green? Payment page checkout design is vital to improving the conversion rate, and changing the colour of the ‘buy now’ button can be one of many adjustments that will hugely change the conversion rate. Then there are the consumers’ payment preferences, which will differ across countries. How consumers prefer to pay in each country will equally change the conversion rate.

Furthermore, Open Banking and open APIS will define the method for sharing payment and non-payment data across businesses. APIS already allow businesses to connect to Alternative Payment Methods (APMS) and other non-payment related services, such as loyalty, authentication, and fraud prevention. APIS are providing cost efficiencies as well as opening up new channels, such as internet-enabled devices, smartphones and wearables – the Internet of Things (IOT).

As these opportunities multiply, economies of scale that simplify and standardise the number of integrations, third party service providers will offer a range of microservices that will revolutionise digital customer experiences.

New customer journeys will emerge where a personalised service in the future will allow, for example, the ‘buy now’ button to be automatically coloured based on the customer’s preference or their funds availability or capacity to accept a loan or even spread the payments over a series of instalments.

Ever since the 1990s, the increased international mobility of goods and services, capital and people have contributed to the growing economic importance of cross-border payments. Payment providers must look to refresh the technology supporting crossborder payment systems, as they largely exist on legacy platforms that were built when paper-based payment processes were computerised, and the design focus was on only domestic payments.

Reducing payment friction in cross-border payments will be at the top of the agenda when planning the new future. The G20 supported by the Financial Stability Board (FSB), the Committee on Payments and Market Infrastructures ( CPMI), and a

range of industry standard-setting organisations have drafted this agenda for the planning of the new future of cross-border payments. As soon as we see the back of this pandemic, the hard work will resume.

Mark Beresford is a Director at Edgar, Dunn & Company (EDC) and has over 25 years of strategic consulting experience in the payments sector. He is responsible for the company’s practice working with omnichannel merchants and payment service providers across the globe.