Adumo Thought Leadership | Pandemic, Consumer Habits Put Spotlight on Payments

By Paul Kent, CEO at Adumo

The early stages of the pandemic were marked by a sudden shift away from cash purchases as consumers sought to limit their exposure to items that were seen as unclean.

Industry figures indicate that 89% of South African consumers have used contactless payments to purchase groceries since the start of the pandemic. In the grocery and pharmacy categories, the number of contactless payments grew thirteen-fold between March 2019 and March 2020.

However the benefits of cashless payments have not significantly reduced cash payment in South Africa and recent data suggests that 53% of point-of-sale purchases in South Africa’s formal economy are still in cash. In the informal sector, up to 90% of all shops run entirely on cash, despite interest from customers in card payment services.

The economic impact of a series of restrictive lockdowns put pressure on businesses and consumers, with employment and take-home pay taking a severe knock across most industry sectors.

Consumers are increasingly seeking flexibility in how they pay for goods, including new forms of credit and alternative payment options.

New payment options offer convenience, flexibility

Recent data from Mastercard indicates that nearly all (95%) SA consumers will consider at least one emerging payment method in the next year.

The growing popularity and accessibility of contactless payments from major global brands such as GooglePay, ApplePay, and MasterPass bodes well for less cash-driven future economy.

New consumer credit offerings such as buy-now-pay-later and purpose-based lending are rapidly gaining ground. According to estimates, buy-now-pay-later is expected to grow between 10 and 15 times in transaction value by 2025. In Europe, buy-now-pay-later is projected to account for 30% of all ecommerce spend by 2025.

Buy-now-pay-later includes online and in-store payments that offer interest-free instalment payments, usually consisting of an instalment scheduled over 2-3 months. South African online retailers already offer this functionality through partnerships with the likes of PayFlex and PayJustNow, and Tyme Bank’s MoreTyme is now available to customers of Pick n Pay.

Another new payment option growing rapidly in the South African market involves point-of-sale financing, often taking the form of purpose-based lending, which is a short- or long-term loan that differs from credit cards as it’s only for a specific in-store product.

Startups such as SwitchPay are leading the way in this market providing purpose-based lending to retailers through an integration with retailers’ payment service providers , allowing them to offer the convenience of purpose-based lending to customers without having to invest in developing new payment technology themselves.

Payment options unlock retail potential

By expanding customers’ options at the point of sale, online and brick-and-mortar retailers can make it easier and more convenient to purchase must-have items.

Offering customers new payment options holds the potential of driving greater footfall to stores, increasing the basket size for each customer, and attracting new customers through the doors who would not normally use or have access to credit.

Global data from PayPal indicates that average order values of customers using its newly-launched buy-now-pay-later service increased by 20% in 2020.

In the more developed markets, growth in buy-now-pay-later adoption has been driven largely by younger Millennial and Gen Z shoppers. In South Africa, where credit card use is much lower than the more developed markets, buy-now-pay-later adoption is likely to be driven across age and demographic groups, since the benefits are clear to the broader population regardless of income.

Retailers are however advised to work with experienced partners, as new payment options need to feature a seamless customer experience or there is a risk of lower adoption. Aspects such as connectivity, traffic volumes and relevance to local communities bear closer inspection.

With competition in the local retail sector becoming more intensified ahead of the crucial Black Friday and Festive Season shopping periods, retailers should take the leap and unlock the benefits of new payment innovation – for themselves and for their customers.

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