All-Star Panel: How Alternative Payments are Evolving to Grow Commerce and Ensure Customer Success
The last few years have radically shifted and changed how we work, socialize, and do business. The pandemic has impacted nearly every part of our lives. Commerce and payments are no different, as the pandemic has brought many challenges to the industry.
But even before the pandemic, there have been major changes in the industry. The rise of alternative forms of payment, the digitization of business, and the move towards cashless societies have been important topics of conversation for years.
To better understand alternative payments and how they are evolving to grow commerce and ensure customer success, we spoke with a panelist of experts at the FinTech and PayTech Connect Asia Summit to speak on the topic. The panelists for this session included: Navaid Kahtib, Country Head of Product Management at HSBC Australia; Bandon Jot Singh, Head of Product, Financial Services at Gojek; Stephanie Santoso, VP Blibli; Sourabh Gupta, VP of Product at Flip.id; Sonal Kapoor, Director of Consumer Lending and Insurance at Flipkart; Armaan Brar, Head of Payments Partnerships, APAC, Uber; and moderator Ivan Chang, Head of Payments, APAC, Disney.
Impacts of COVID-19 on the Payments Industry
After two years of the pandemic, we are learning to adapt and adjust to the rapid changes it brought. The payment landscape, like many other industries, radically changed. Here are some of the main impacts of COVID-19 on the payments industry:
- Rapid Increase in Ecommerce
It goes without saying that people started online shopping a lot during the online pandemic! For consumers, it was a means of convenience and safety. But for businesses, it was a necessity. Or as Navaid Kahtib put it, “Ecommerce went from an escalation of growth strategy to one of survival.”
This increase in ecommerce led to new and innovative payment technology. Instead of payment being an incidental singular service, many payment providers began to offer end-to-end business services for companies moving their operations online. - Cash vs. Cashless
The pandemic required more contactless payment options to help reduce the spread of the virus. And while this was the case in many locations, we cannot assume that every geographical area gave up the use of cash.
In fact, during the pandemic, many lower-income people did not have the luxury to stay at home and purchase things online. They had to go out and get to work, often requiring the use of cash for things like public transit. - Rise of BNPL
Given the rise of ecommerce and unfortunate economic hardship for many during the pandemic, BNPL (Buy Now, Pay Later) payment services increased as well. BNPL is popular in societies with low access to credit cards. There are BNPL platforms that are easy-to-use and convenient, further attracting new customers to the payment method.
Stephanie Santoso shared her take on the rise of BNPL: “Due to the economic constraints, a lot of people are experiencing tough times from the pandemic. There has been a rising popularity of Buy Now Pay Later. The simplicity and payment flexibility of BNPL makes it so much easier for people to check out and still shop, despite having a tough time at the moment.” - Credit Card Offerings
Credit cards typically offer rewards on items such as travel or other non-daily purchases. During the pandemic, however, credit card companies have shifted their rewards programs towards daily purchases like groceries or gas. This shift came to support customers with their day-to-day needs considering economic challenges during the pandemic. - Innovation from Fintech Companies
The challenges of the pandemic drove innovation and creative solutions by several fintech companies. Industries such as logistics became increasingly popular as people needed to transport goods between locations. This created a new space for payment services and technology to support the needs of customers and businesses.
Moving Towards Cashless Societies
The topic of “cash vs. cashless” has been an ongoing conversation for decades. It is particularly relevant in the South Asia and APAC regions, as many countries straddle the divide between cash and cashless forms of payments.
The pandemic has accelerated the move towards cashless methods of payment. The biggest challenge remains for small providers (“mom and pop” shops) and SMBs (small and mid-size business). They may not have the resources of infrastructure to digitize their business and accept cashless forms of payment.
Here are a few considerations for the digitization of SMBs:
- Small merchants were generally left to struggle at the beginning of the pandemic, as they were not large enough to work with established digital infrastructure.
- Digitization for SMBs is not a choice of luxury, but one of survival. Companies should look at supporting them through a lens of “handholding” (i.e., educate and teach) versus extracting value.
- Social selling and social media are popular across Asia. This can be channeled into new forms of payment and selling as technology enables.
Sourabh Gupta summarized the problem that small merchants and SMBs faced: “Initially in the pandemic, this segment [small merchants] got ignored. They were at a loss where consumers didn’t want to use them because they didn’t have a lot of payment options to provide … But that is changing now … Building products for this segment of users is going to be the next big thing.”
Key Trends for Alternative Payments
Alternative payment methods are defined as anything besides cash or credit cards. They have been steadily increasing over the years, again, accelerated by the pandemic.
More players are moving into the space to fill the need for alternatives besides cash and card. Three categories of alternative payment providers include:
- End-to-end business service providers. These companies go beyond simple payment solutions, which can be easily replicated by competitors, to support a firm’s entire business operations.
- Traditional financial institutions (i.e., banks). While some may disagree about the ability of banks to innovate quickly in this space, they are still well-poised as a key player. Banks work directly with businesses and consumers, so can provide services to bridge the gap and meet a variety of needs.
- BNPL platforms. As previously mentioned, BNPL is on the rise. It’s estimated that 3-5% of financial transactions will be through BNPL in 2023. This massive growth has allowed several new fintech companies to jump into the space and provide alternate payment methods.
The last option—BNPL platforms—offer a particularly exciting opportunity in developing markets. Sonal Kapoor shared her thoughts on it: “The concept of Buy Now Pay Later has been in the modern economy for quite some time … It’s just only now seeing an increased resurgence through the digital transformation, through a combination of tech solutions and drastically improved technological capabilities.”
However, there is also a reason to have caution around BNPL. As Bandon Jot Singh shared: “Not to forget, BNPL is still a credit at the end of the day. Anyone who’s providing BNPL is not just in the business of payment but also the business of collecting the payments back … You need to collaborate well on knowing your customers and how to collect back payments.”
When considering alternative payments in general, it’s also important for companies to remember that customers have concerns about safety, privacy, and fees. By keeping those in mind, they can work to create solutions that help the average customer.
Conclusion
The alternative payment space is an exciting area to watch. New companies are popping up every day with innovative and creative solutions to real-world problems for businesses and consumers.
And, as we continue the conversation, there are big questions to answer. One such question was posed by Armaan Brar. In reflecting on the rise of UPI in India, he shared: “[UPI] is about to cross PayPal in volume done annually. UPI only exists in India, PayPal exists all over the world. UPI authorizes payments over the internet, PayPal uses Visa and Mastercard. Do we really need Visa and Mastercard in the future?”
Whether we need traditional credit cards or not, fintech companies and payment providers will do well to remember that payment methods are localized in nature and need local solutions. Beyond this, there is major appetite for change in many markets, which creates space for innovative solutions and disruptive technology.