covid-19 impact on payments: the evolving effect on

©2020 Aite Group LLC.

COVID-19 Impact on Payments: The Evolving Effect on Commerce and Long-Term Expectations

Ron van WezelSenior Analyst

Ron BergamescaChief Executive OfficerPayveris

April| 2020

Sponsored by

TRUSTED BY 250+ FI CLIENTS

PARTNER NETWORK

INDUSTRY PARTICIPATION

INDUSTRY AWARDS

2018 Best in Show

2019 Best in Show(Backbase Collaboration)

Intelligent Digital Payments…Made Simple.

THE MOVEMONEYSM

PLATFORM

Simplify

Control

Extend

OPEN API | CLOUD BASED | DIGITAL PAYMENTS AND MONEY MOVEMENT HUB


AGENDA• Status today

• Economic outlook

• Implications for commerce and payments

• Conclusions: risks and opportunities for banks and PSPs


Status today


COVID-19: arrival of a true “black swan” event

• Services business collapsed

• Necessary retail grew somewhat

• Nearly 30% of merchants are closed in the U.S.

Source: Facteus

Source: CardFlight ©2020 Aite Group LLC.


Recovery will be staged

• Neilson describes four thresholds in the transition back to the ‘new normal’• Pantry preparation• Quarantine living preparation• Restricted living• Living a new normal

• Most of the world is in quarantine

• A few nations are just beginning to get to the final stage

Source: The Neilson Company©2020 Aite Group LLC.


Dealing with a black swan

““The central idea in The Black Swan is that: rare events cannot be estimated from empirical observation since they are rare.”

― Nassim Nicholas Taleb, The Black Swan: The Impact of the Highly Improbable



Investors are starting to see light at the end of the tunnel

Source: Google Finance



Mixed performance of payment companies

• Payment processors and networks perform within range of overall market

• Discover and Amex hit very hard due to exposure to credit card lending and T&E segment.

• Square was initially hit hard as well due to its dependence on small retail business but bounced back strongly.

• Online payment businesses (PayPal, Adyen) perform relatively well.

Closing prices YTD (as of April 20, 2020)NASDAQ -6%S&P 500 -13%MSCI World -15%

Adyen 2%PayPal 1%Square -4%FIS -12%Worldline -13%Visa -14%Fiserv -16%Mastercard -17%Global Payments -20%ACI -32%Amex -33%Discover -59%


Economic outlook


GDP contraction will be stronger than during the global financial crisis• ING bank developed four scenarios for global

economic outlook post COVID-19

• Their “base case” scenario forecasts a negative growth (contraction) of US GDP in 2020 of -7%, and -5% in the eurozone.

• The variance between their “best case” and “worst case” scenarios is huge: -3.6%, -3.2%; and -14.9%, -16.1% respectively.

Source: ING bank



Payments revenue will decline as a result of the crisis…

Source: McKinsey



…but retail payment volumes proved resilient even during the global financial crisis

Source: Capgemini World Payments Report, Worldbank, Aite Group analysis



Digital Transactions—YoY Growth

P2P

A2A

BP

Sharp increase in P2P Transactions, 54% YOY

Pre-Covid Covid

BP/A2A remaining flat


Digital Transactions By Month—Bill Pay

2020

2019

Pre-Covid Covid

2020

2019

8% Decrease in $/Txn

13% Increase in Volume

April vs. Feb Change


Digital Transactions By Month—A2A/External

2020

2019

Pre-Covid Covid

2020

2019





Digital Transactions By Month—P2P

2020

2019

Pre-Covid Covid

2020

2019





Commerce forecast: growth will continue, albeit at a lower rate • Pre-COVID19, Worldpay forecasted U.S.

commerce to grow at a CAGR of 4.4% (2019-2023).

• Post-COVID19, Aite Group expects total payment value to grow at a reduced rate of 2.8% over the same period.

• The relative share of e-commerce is expected to grow to about 12% of total commerce value by 2023.

Source: Aite Group analysis of Worldpay by FIS data


Implications for commerce and payments


Shift of cash to digital paymentsWhat we see happening:

• Perceptions that cash could spread pathogens is changing payment behavior by users and firms.

• Limits for contactless card payments have been raised around the world to facilitate touch-free card usage during the crisis.

Post crisis implications:

• The outbreak could lead to a structural increase in the use of mobile, (contactless) card and online payments. These developments may differ across countries.

• There is a US$ 16.8 trillion opportunity globally to convert cash (and check) to digital (source: Visa 2018). This opportunity can be monetized more quickly after the crisis when end user payment behavior is indeed changing away from cash and checks to digital payments.

Source: NFC World

Source: Visa



E-commerce growth is accelerating during the crisis

Source: https://ccinsight.org/

What we see happening:• Short term, there is a severe impact on retail

payments. Cowen and Company estimated that total foot traffic to US retailers was down 97.6% for the week through March 27 compared to the same time last year.

• E-commerce growth is strongly accelerating during the crisis. Online commerce revenue was up 83% in the UK and 59% in the US in April compared to the previous year.

Post crisis implications:• There will be an incremental shift from physical

POS to online commerce. • A shift of 1% of global volume from POS to e-

commerce could add US$ 400-600 billion in transaction value for e-commerce.



New volume is moving to online commerce

What we see happening:

• Traditional brick-and-mortar merchants see increased online revenue in markets around the world.

• Demand for online food and beverage, one of the least penetrated online categories, is surging. According to Rakuten Intelligence, order volume for online grocery retailers rose 210% from March 12 to 15, compared with the same period in 2019.


• COVID-19 fears may change habits that will persist post crisis.

• For example, food and beverage is a $1 trillion category in US retail sales. If the ecommerce category penetration went from 3.2% to 5.2% over the next couple of years, that’s about $20 billion additional volume moving online (source: e-marketer).

Online revenue of brick-and-mortar retailers in the last 7 days compared to the same period last year (pre-COVID19 outbreak).

Source: https://ccinsight.org/



New opportunities to leverage alternative payment methods (APMs)What we see happening:

• APMs claim an increasing share of global e-commerce payment volume.

• Companies benefit from APMs that leverage instant payment rails to provide faster liquidity, reduce risk, and lower payment cost.


• Instant (real-time) payments will be at the core of payment innovation for both online and in-store applications.

• Partial shift of card payments to open banking /open payments: account-to-account payments that are initiated by the PSP directly from the customer’s bank account (with the customer’s consent) and credited to the merchant’s account.

Source: Worldpay by FIS



Increasing risk in the payment ecosystem

What we see happening:

• Phishing and a variety of other scams are on the rise as fraudsters try to exploit new vulnerabilities in society (health concerns, challenges of remote working, CARES act). Increase in CNP fraud, account take-over, internal fraud on the horizon.

• Spikes in non-fraud disputes, 40% increase in call center volumes.

• Higher risk of delinquencies for revolving credit.


• Strong increase in online/digital business will put more strain on fraud prevention and require investments in modern technology by merchants and payment companies.

• Reduced income on credit cards due to stricter credit policies; move to debit.



0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

14.00%

16.00%

Bill Pay A2A P2P

% Alerted TransactionsJan/Feb/Last 30 Days

Jan-20 Feb-20 Last 30 Days

Suspicious Transactions by Transaction Type

53% Increase

10% Decrease23% Increase



Conclusions: risks and opportunities for banks and PSPs

The crisis will have a severe impact on the economy in all scenarios. This induces risks for the payments business on the longer term, but there are also opportunities that can be leveraged:

Risks• Long term impacts to certain merchant

sectors (travel, entertainment). • Lower overall spend and card revenue. • More investments required in fraud

prevention. • Reduced income on credit cards due to

stricter credit policies; move to debit (with lower income for banks).

Opportunities• Customer preference for digital payments will

generate new income when cash and checks are replaced.

• Accelerated growth of e-commerce payments that can be monetized by payment companies.

• Payment innovation to meet business needs for real-time, frictionless payments.



About Aite GroupAite Group delivers research and guidance to leading institutions and technology providers across the global financial services industry. With expertise in banking, payments, insurance, wealth management, and the capital markets, we guide financial institutions, technology providers, and consulting firms worldwide. We are dedicated to helping our clients make smarter decisions, faster, to strengthen and grow their business.

About PayverisPayveris is the creator of The MoveMoneySM

Platform, an Open API cloud-based platform that enables financial institutions to control, simplify + extend digital money movement capabilities to any application or device while lowering user experience friction, significantly reducing operating costs + future-proofing the IT investment. The enterprise platform supports a wide range of money transfer capabilities including consumer and business bill payment, P2P payments, A2A/External Transfers, eBillpresentment, loan payments, and B2C disbursements.

covid-19 impact on payments: the evolving effect on

Documents