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Disruption Playbook: Winning the Shift from Cash to Digital Payments

May 22, 2021


Digital Money Management

The pandemic has drastically changed the way people and businesses do business, bolstering the use of digital payments in lieu of cash transactions. Here’s how payments companies can adapt to the new reality.

Market disruption is here to stay — bolstered by the pandemic and subsequent shift toward digital payments and displacement of cash and checks. This disruption is slated to scale up, quickening the pace of emerging and alternative digital payment options by big tech companies and fintechs who aim to provide better user experiences less expensively. 

Disruption is a blessing and a curse; on one hand, it calls for a dramatic shift in infrastructure for payments companies who must adapt and respond to the new demand for digital payments options. On the other hand, it provides an opportunity to be a leader in that disruption and to own the shift from cash to digital payments in a lucrative way. 

Weathering a Rapid Change in Global Payments

McKinsey released a report in October of last year that highlighted just how much disruption the industry has weathered due to the pandemic. In 2020, global payments revenues shrunk by nearly 22% — to the tune of $220 billion -— compared to the first half of 2019. McKinsey’s estimate at the time of publication was that payments revenue at the end of 2020 would dip between 11 and 13% below the pre-pandemic projections for the year. 

While many industries faced a stark contraction in consumer spending, retail saw a shift in buying behavior — consumers spent $347 billion online at US retailers in the first half of 2020. This represents a 30% increase over the same period the year prior and an increase in the annualized 2019 growth rate of online shopping by a multiple of 6.  

Consumers turned en masse to digital peer-to-peer and consumer-to-business payments, including debit cards, mobile payments, and contactless payments. As in-person shopping decreased, cash transactions followed suit. 

Digital Transformation for In-Demand Digital Payments

The winning play for payments companies is rooted in the ability to modernize payments and digitally transform in a way that facilitates the rapid deployment of innovative payments solutions. The path forward is agile and digital-first, which has come as a shock to firms that have not taken digital transformation seriously prior to the pandemic. That said, most organizations have come to embrace payments modernization, propelled by pandemic-related shifts in customer behaviors and cost-efficient cloud technologies. 

As cash use continues to decrease and electronic and instant payments increase, payments firms have come to see the light about the inhibitions of legacy systems and the obstacles they present to payments transformation. This provides sufficient reason to retool internal operations in a way that supports innovative offerings that meet and exceed customer expectations, especially around omnichannel, secure, “always-on”, seamless digital payments. 

In addition to placing an increased emphasis on digital transformation and payments modernization, organizations must be strategic about their path forward. This means taking a careful look at who they serve, how they serve those customers, and how quickly they can adapt to continuously evolving needs. 

Choose your niche: As the McKinsey report notes, there has been a massive restructuring of commercial and consumer commerce, shifting where value is captured in payments. B2B-to-consumer and medium-size enterprises are growing, increasing the need for tailored digital payments solutions. 

Focus on customer-centric solutions: payments products are passe, with the emphasis instead being placed on services and solutions that prioritize the end-customer experience. Customer needs have swelled beyond the simple movement of money. The consumer no longer wants to deal with payment as a step in the purchase process and is instead focused on an optimized shopping experience complete with customer support and the avoidance of negative experiences. 

Speedy approach to digital transformation: The planning around digital transformation often spans half of a decade. Rather than spearheading digital transformation initiatives through the lens of operational cost, payments organizations must instead hone in on customer journeys, especially through the modified revenue context of the current landscape. New and emerging market expectations should spur a faster approach to digital transformation that shrinks that period from five years to as little as 18 to 24 months. 

The global context for payments changed dramatically in 2020, but that evolution continues in 2021. While the change itself is notable, the speed of change merits the attention of payments companies who want to stay ahead of the curve and transform in a way that is beneficial to the bottom line.

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