Everyone reading this is aware of the profound impact of coronavirus on both the general public and businesses around the world – but what can we in the payments industry do to meet the changing needs of our post-COVID world?
The pandemic has forever changed the experience of being a customer, an employee, part of society, even an individual, and changes in behavior at scale should be expected for some time to come.
The IMF estimates that the global economy shrunk by 4.4% in 2020. The organization described the decline as the worst since the Great Depression of the 1930s.
So the real question is, what good are we doing in the world to meet the changing needs of populations at large?
Surprisingly, despite global economies shrinking, e-payments and digital transactions have continued to grow. The US wire and ACH systems have seen their biggest volume increases in decades, and SWIFT’s 2021 traffic is higher than it was in 2019 pre-pandemic. This is happening because populations are changing their payments behaviors.
The challenge now is for banks and financial institutions to ensure that they are the ones who are prepared to meet those rapidly changing customer payments needs, otherwise they will be outsmarted by nimbler competition.
For businesses that are struggling, ultimately what is needed is increased access to capital. In order to relieve liquidity shortages and avoid unnecessary bankruptcies, national governments have widely supported job retention schemes, such as the Paycheck Protection Program in the US, the Coronavirus Job Retention Scheme or furlough scheme in the UK, the extension of the Kurzarbeitergeld subsidy scheme in Germany, and the partial activity scheme for unworked hours in France.
What is common to all these job retention schemes is the critical need for timely access to funds. Individuals and financial inclusion seriously matter here too. These funds need to be accessible to all, including the 1.7 billion “unbanked” in the world – representing no less than a democratisation of access to capital.
While it may seem that the financial services industry is a bystander rather than on the front lines of these global efforts, the payments industry has a fundamental part to play to ensure that funds get moved to the right place at the right time, with the right data around them.
Part of making this work is thinking beyond banks as simply providers of banking services. Fintechs and payment service providers have a big part to play here even where they do not have banking licenses. Ultimately, the collaboration between banks and their fintech partners can accelerate the broadening of access and the reduction in ranks of the unbanked.
For the payments industry to continue to be successful, there are several important infrastructure components that should be implemented and made universally available.
Open banking is one essential component, as it helps contribute towards the democratization of capital by opening up access to bank accounts and promoting competition.
Instant or real-time payments allow people to receive funds faster, helped by schemes and mechanisms for cross-border connectivity. ISO 20022, the emerging universal messaging standard for payments messages, is also a critical piece of the puzzle as it allows rich data to flow with payments.
Microservices and APIs enable banks and fintechs to collaborate, allowing services to be engineered around the customer.
Customers can also benefit from cloud and payments-as-a-service processing models which improve productivity, reduce costs, ensure resiliency and 24×7 access to banking services.
Central bank digital currencies (CBDCs) can help towards the democratization of funds without the downside speculative risks currently associated with cryptocurrencies – and it is happening right now. The Bahamas was one of the first nations to issue a CBDC, launching a cryptocurrency version of the Bahamian dollar last year in an effort to avoid moving physical cash across its 700 small islands.
Cambodia, too, launched a CBDC version of its own currency called Bakong in 2020. The US has two programs running to investigate a digital dollar, and the Bank of England is talking to banks, retailers, and members of the public to decide what its own digital currency should look like. El Salvador has also announced the adoption of Bitcoin as its currency.
We in the payments ecosystem must unite to seamlessly connect all of these technologies because the stakes are high for the 220.5 million unemployed and the 1.7 billion unbanked people globally whose lives can be profoundly improved by the successful adoption of this technology.