1、US consumer payments in a post-COVID-19 world How to bolster payments institutions growth in challenging times A report from the Deloitte Center for Financial Services About the Deloitte Center for Financial Services The Deloitte Center for Financial Services (DCFS), which supports the organizations

2、 US Financial Services practice, provides insight and research to assist senior-level decision-makers within banks, capital markets firms, investment managers, insurance carriers, and real estate organizations. The center is staffed by a group of professionals with a wide array of in-depth industry

3、experiences as well as cutting-edge research and analytical skills. Through our research, roundtables, and other forms of engagement, we seek to be a trusted source for relevant, timely, and reliable insights. Connect To learn more about the vision of the DCFS, its solutions, thought leadership, and

4、 events, please visit Subscribe To receive email communications, please register at Engage Follow us on Twitter at: DeloitteFinSvcs DELOITTE PAYMENTS SERVICES Deloittes Payments team serves clients across the entire payments ecosystemissuing banks, acquiring banks, card networks and associations, ac

5、quiring processor/service providers, merchants, fintechs, and payment platforms. With professionals across consulting, tax, risk and financial advisory, and audit, Deloittes Payments group provides end-to-end capabilities that can enable companies to offer a wide range of alternative delivery channe

6、ls and enhance customer experience. Learn more on D. Key messages 2 The payments industry has remained resilient during these difficult times 3 COVID-19 has challenged the momentum in the US payments industry 4 New opportunities for consumer payments in a post-COVID-19 world 7 Charting out strategie

7、s for the way forward 9 Theres (more) light at the end of the tunnel 13 Endnotes 14 Contents 2 KEY MESSAGES The US payments industry has remained resilient in supporting consumers financial well-being, which has been impacted significantly by the COVID-19-driven economic shutdown and rising unemploy

8、ment. However, several challenges loom on the horizon for payments institutions. For instance, record unemployment is likely to hurt card issuers profitability, due to lower payment volumes and higher credit risk. Credit card charge-offs could peak at 8.1% in 2021, compared with 3.8% in 2019. In par

9、allel, we expect to see an acceleration of some recent trends in the way consumers “live, work, play, and pay” and integrate digital and real more. Payments institutions may also be required to prepare for these structural changes over the next 1218 months. Payments institutions should strike a bala

10、nce between recovering from the near-term challenges and positioning to thrive in a post-COVID-19 world. Among other measures, they should harness digital to bolster client-centricity and manage risks, invest in partnerships to add new capabilities, and make concerted efforts towards ubiquitous paym

11、ents, especially for the underserved customer segments. US consumer payments in a post-COVID-19 world 3 T HE COVID-19 PANDEMIC has disrupted the payments industrys growth momentum, with varying impacts on issuers, acquirers, payment network providers, and financial technology companies (fintechs) in

12、 the United States. Lower customer spending has hit their revenues, some more than others. While digital and contactless payments have surged,1 theres been a marked decline in the point-of-sale (PoS) transaction volume.2 Despite lower business activity, the US payments industry has shown resilience

13、in supporting consumers during these challenging times. Many credit card issuers have been quick to offer forbearance options for consumers to skip their minimum interest payments.3 This help is timely, considering that US household credit card debt was at US$893 billion in the first quarter of 2020

14、 (representing 6.2% of the total household debt).4 Interestingly, this figure is just a bit higher than the peak of US$866 billion during the midst of the 200809 financial crisis.5 Importantly, the US payments infrastructure has also supported the governments disbursement of unemployment benefits to

15、 millions of consumers. However, theres scope for higher efficiencies from digital payment methods to offset the current challenges from the use of paper checks and legacy infrastructure.6 To that point, the issuance of contactless cards, promotion of digital wallets, and installation of PoS devices

16、 with contactless functionalities have moved the needle in meeting consumer demand for no-touch payments. But more can and should be done, as the current times mark an accelerated shift in the world of consumer payments. For instance, US-based payments institutions can take inspiration from the near

17、-invisible, yet profound, role that the consumer payments industry plays in developing countries such as China and India. Not only are most digital payments in those regions contactless (with rampant usage of QR codes in mobile payments), but they are seamless, real-time, and ubiquitous.7 Arguably,

18、key institutions in the US payments ecosystem have their own COVID-19 challenges to recover from. But at the same time, reimagining the post-COVID-19 world in payments could offer new opportunities to reignite performance. The payments industry has remained resilient during these difficult times Des

19、pite lower business activity, the US payments industry has shown resilience in supporting consumers during these challenging times. How to bolster payments institutions growth in challenging times 4 T HE US PAYMENTS industry experienced a year of healthy growth in transaction volumes and value in 20

20、19. According to The Nilson Report, payment cards generated US$6.7 trillion in consumer and commercial purchase volume in 2019, up 8.5% from 2018.8 However, recent changes in consumer behavior due to the pandemic-induced economic lockdown and stay-at-home orders have created several challenges for p

21、ayments institutions. Consumers have cut down on their discretionary spending via PoS and cross-border payments, impacting volumes across many payments institutions (figure 1).9 A JPMorgan Chase Institute study of Chase cardholders transactions suggests COVID-19 has challenged the momentum in the US

22、 payments industry Note: Net spending intent=Percentage of consumers who selected “somewhat/a lot more” minus Percentage of consumers who selected “somewhat/a lot less” in response to the question “How much do you plan to spend on each of the following items over the next four weeks compared to the

23、last four weeks?”. Sources: Deloitte State of the Consumer Tracker, Deloitte Insights, June 13, 2020; Stephen Rogers and Lean Pieters, Small positive signs in the consumers dual-front crisis, Deloitte Insights, June 4, 2020. Deloitte Insights | FIGURE 1 With much discretionary spending on hold, seve

24、ral payments institutions could experience lower revenue Net spending intent of US consumers (%) Discretionary spending Nondiscretionary spending TravelFurnishingsApparel/ footwear ElectronicsFuel for automobile Home internet/ mobile phone MedicinesUtilitiesEveryday household goods Groceries -27 -15

25、 -9-9 -6 12 17 18 29 12 US consumer payments in a post-COVID-19 world 5 that consumer spending across income demographics declined 40% between March and April this year.10 Of course, this decline has also impacted merchant acquirers servicing the affected industries, including travel and entertainme

26、nt, hospitality, and restaurants. Arguably, a rise in nondiscretionary spending (figure 1) and higher digital and contactless payments are some bright spots, especially for digital paymentsbased business models, some of which were developed by large fintechs.11 However, the increase in contactless a

27、nd digital payments seems to underscore the importance for both acquirers to invest in contactless terminals as well as for challenged PoS finance providers to deepen partnerships with online merchants or brick-and- mortar merchants with strong digital channels. Meanwhile, consumers appear to be agg

28、regating purchases at large merchants that have a digital presence; offer home delivery or drive-through pickup options; and invest in their supply chains, staffing, and safety measures. This behavioral change has strengthened large merchants power to bargain with payment networks for lower processi

29、ng fees, challenging the latters margins. In addition, consumers have been canceling their transactions, such as travel, sporting, and other entertainment tickets, raising chargeback volumes.12 The increase in chargebacks could create a liquidity challenge among some cash- strapped acquirers and ind

30、ependent sales organizations (ISOs) or member service providers (MSPs). At the same time, the escalating risk of businesses going bankrupt could add to the worries of acquirers, ISOs, and MSPs. The impact of the lockdown on several small- business categories has, in turn, adversely impacted many car

31、dholders employment and thus their ability to pay off their credit card bills.13 Historically, credit card charge-off rates have had a high correlation with the national unemployment rate (figure 2); however, the relationship may soften in the near term, due to government intervention, a financially

32、 stronger consumer, issuers forbearance programs, and the nuanced differences in the nature of unemployment.14 Credit card charge-offs could increase to 8.1% in 2021, compared with 3.8% in 2019 (figure 2; also see sidebar, “Forecasting methodology” for more details). However, the increase in contact

33、less and digital payments seems to underscore the importance for both acquirers to invest in contactless terminals as well as for challenged PoS finance providers to deepen partnerships with online merchants or brick-and-mortar merchants with strong digital channels. How to bolster payments institut

34、ions growth in challenging times 6 To mitigate credit risks, many issuers have paused solicitating new customers and started tightening their underwriting standards. Acquirers and fintechs providing financing and payment services to brick-and-mortar small- and medium-sized businesses (SMBs) have als

35、o paused some of their lending to limit credit exposure and are perhaps holding higher cash in merchants reserve accounts.15 However, tight standards are restricting access to credit, especially for those who may need it the most. For instance, while consumers still have over US$3 trillion in availa

36、ble balance on their current credit cards (as of Q1 2020), a New York Fed analysis indicates that the balance is unevenly distributed by income, with little credit available for low-income individuals.16 Note: Dotted line indicates forecasts. Sources: Deloitte Economics forecasts; Deloitte Center fo

37、r Financial Services forecasts; Bureau of Labor Statistics data; S Beyond COVID-19: New opportunities for fi ntech companies, Deloitte, accessed July 17, 2020. Deloitte Insights | FIGURE 3 Reimagining payments in a postCOVID-19 world Challenges Strategies to recover Strategies to thrive Issuers Risi

38、ng credit risks but tightening fi nancial access Intensifying competition to become the default payment choice Strengthen credit risk management Show empathy in off ering debt management and loan modifi cation solutions Off er fl exibility to personalize experience Create value beyond card payments

39、and integrate in consumers day-to-day lives Networks Declining transaction volume Growing bargaining power of large merchants Accelerate the shift to contactless payments Enable faster distributions of funds Create value beyond card payments Co-lead the ambitious initiative of modernizing the US pay

40、ments infrastructure including digital identity standards Acquirers Decreasing interest in contact-based card present transactions Surging chargeback volumes Increasing risk of merchant attrition Support merchants transition to contactless payments Strengthen liquidity positions to manage chargeback

41、s Capitalize on acquisitions to build scale Emphasize the implementation of faster payments capabilities for merchants Support merchants in building omni-channel capabilities Fintechs Growing liquidity risks for cash-strapped fi ntechs Dipping volumes for PoS-based business models Expand partnership

42、 strategies with banks, nonfi nancial institutions, and other fi ntechs Advance fi nancial inclusion programs for the under- banked, unbanked, and gig workers How to bolster payments institutions growth in challenging times 10 Strategies to consider for recovering in the near term Payments instituti

43、ons across the value chain are targeting cost rationalization by cutting down on discretionary spending, such as marketing, travel, and entertainment expenses.25 But a focus on cost reduction alone may not suffice for a resounding recovery when consumer behavior is evolving at such a rapid pace. Pay

44、ments institutions should also focus on the following strategic actions in the near term: Accelerate the shift to contactless payments: According to a Mastercard Contactless Consumer Poll, 51% of American consumers surveyed are using some form of contactless payment, which includes tap-and-go credit

45、 cards and mobile wallets, since the pandemic began.26 To adapt to consumers new ways of making payments, networks should work with issuers to accelerate the issuance of contactless cards, and with acquirers to set up contactless PoS terminals (to accept tap-and-go card, digital wallet, and QR code

46、transactions) at brick-and-mortar merchants. Offer flexibility to personalize the consumer experience: The competition to become the default payment choice, i.e., the stored payment instrument on websites, apps, or digital wallets that consumers use most for their transactions, has intensified among

47、 card issuers with the rapid surge in digital payments. It seems an opportune time for issuers to strategize ideasfrom simple to boldto reimagine their value proposition. Consumers are looking for flexibility in choosing their product features: Sixty-nine percent of respondents in our 2019 US paymen

48、ts survey said they would find a credit card that offered personalized features appealing. They may also find value in rewards that are perhaps more relevant, flexible, and personalized. For instance, Capital One is temporarily allowing select cardholders to redeem thousands of points accumulated in

49、 airline miles in spend categories most relevant to them in todays stay-at-home environment, such as food delivery, streaming services, and mobile phone purchases.27 Help SMBs digitize payments and sales operations: Consumers shift to digital will likely necessitate that merchants, especially SMBs, up their digital gamebut they wont be able to do it alone. Payment net