In a matter of weeks, the pandemic changed how we live and work. We hunkered down at home, giving over dining tables to school and office desks. Shopping for the essentials quickly became something of a mashup between The Hunger Games and Supermarket Sweep – with speed and contact avoidance being prized above all else.
In other instances, we took to socialising online, with 70 per cent of UK people making use of video-calling services between April to June. “I think you’re on mute” became everybody’s new catchphrase, we all adopted the “Zoom dress-code” of office attire from the waist up, and competed with colleagues for the most enviable bookshelf flex.
Meanwhile, our economy witnessed triple-digit growth in e-commerce. Any business that didn’t previously have an online presence had to pivot fast, or risk irrelevance. It is said that adversity necessitates invention – but this was a case of “go digital now, or you’re done”. When we did venture out, cash was spurned in favour of contactless payments. As lockdowns eased and people slowly returned to shops and restaurants, these new habits seemed to stick.
Fortunately, the payments industry was ready. “Nobody can prepare for an unprecedented pandemic, but we have been preparing for a shift to digital for a long time – putting in the work to make sure that acceptance of electronic payments is as widespread as possible,” says Michael Miebach, Mastercard CEO from January 1, 2020.
“It is interesting to see how necessity drives adoption of new technologies and how things that were expected to take years were compressed within a matter of months,” Miebach adds. For example, adoption of contactless payments accelerated amid the pandemic, with Mastercard recording a huge 40 per cent growth in contactless transactions in the first quarter of 2020 alone. Will it last? Miebach believes it will. He points to the arrival of contactless card payments on the Underground in London: contactless transactions subsequently went up in coffee shops near Tube stations. “It’s muscle memory,” he explains.
Accelerated adoption of digital technologies is being observed elsewhere in financial services. Indeed, the Covid-19 crisis has become an inflection point for trends such as online banking, mobile payments and bill splitting apps, with growth seen in all.
For Mastercard, that demonstrates that the future of payments is actually beyond the physical card. Miebach recalls that, when Mastercard was expanding into emerging markets, they quickly realised that cards weren’t going to work in a market that had undeveloped or limited payment acceptance infrastructure. “We were going to have to try something entirely different,” he says.
‘We have been preparing for a shift to digital for a long time, to ensure acceptance of electronic payments is widespread’QR payments, for example, in which customers scan a merchant’s unique code which lets them pay using their smartphone, proved popular and effective in Asia and the Middle East and Africa. The use of QR codes amid the pandemic for contact tracing could see the idea gain traction in Europe and North America, too. “We’re retro-fitting innovation from emerging markets back into the developed world,” Miebach says. “We have an innovation lab sitting out in Kenya that deals exclusively with innovative solutions around low-ticket payments, financial inclusion and so forth.” The aim is to develop them for other markets, bringing inclusive payments to everyone.
The ultimate goal is to give businesses and their customers choice and control, regardless of how payments are made. Miebach points to messaging app payments, a system popular in China with AliPay and WeChat. “If a WeChat user visits Oxford Street and wants to pay with that particular technology, then we’ll enable that,” he says. “In the end, it’s choice: here are the relevant technologies, pick the one that makes the most sense for you.”
Elsewhere, 5G, the internet of things (IoT), and automation could change not only how we pay, but how we buy. “Those are going to open up opportunities for machine-to-machine payments, micro payments, social payments,” Miebach says. For example, the IoT could allow machines to communicate and order what people need, just when they need it.
5G combined with sensors could enable a touch-free retail experience, with customers charged as they exit the store, or let shoppers see which farm grew that orange in your basket of groceries, an idea that pairs 5G and blockchain. “5G will allow you to go beyond the payment transaction in terms of the experience. There’s zero latency, you can do anything at the point of interaction,” says Miebach.
Indeed, artificial intelligence and 5G could enable an entirely new world of data use. “All of the data that a 5G transaction can carry, somebody will want to understand it and make use of it,” he says. “We can make sense of that in a principled way, ensuring that whoever owns the data decides what it’s used for. We can be that trusted party in this fast-changing world with all these new players coming up.”
‘These technologies can push beyond financial inclusion to help people grow financial wellness and resilience’Permissioned sharing of bank account and transaction data is central to open banking, which has many applications, but can notably be used to determine a person’s eligibility for credit if they can’t provide it by traditional means. “These technologies can push beyond financial inclusion to help people grow financial wellness and resilience,” Miebach says. Juvo, for example, uses everyday mobile transactions to build a financial identity for those without a formal credit history.
Challenges remain, and chief among them is security. The pandemic saw a wave of fraudulent texts and emails, with around four in ten people saying they’d seen more such activity. “The simple notion of more digital and more data needs greater investment in cybersecurity to outpace hackers and fraudsters,” Miebach says, emphasising the critical focus on securing financial transactions using technologies such as AI and biometrics.
Mastercard’s solutions include enhanced analytics to screen for attacks as they happen, as well as payment tokens to help secure online shopping. Other approaches include PhishAR’s device-based two-factor authentication system to help reduce financial fraud.
For all the progress, the shift to digital will be considered a success when it includes everyone. “A vibrant economy and an inclusive economy are synonymous,” Miebach says. Other digital innovations can help lower barriers to participation for people who are typically underserved by financial products and services, be that a voice-banking system or an AI that translates services into different languages.
Digital identity solutions can be a vital enabler of financial inclusion, providing secure access to a bank account for unbanked populations around the world. Governments need to help, adds Miebach, as without trustworthy identification for citizens, it’s difficult to roll out digital banking. “When the private sector and the public sector co-operate, this will succeed and will work very well,” he says.
For all of this, Mastercard is playing a key part in bringing the future of payments to life and joining together different payment systems, open banking platforms and more. “The fundamental role that we have is one of connectivity – any payment to any payee, any way that they want,” Miebach says.
Those goals have been part of Mastercard’s journey for years, but there’s more to do. “Collaboration is the answer,” says Miebach, so the shift sparked by the pandemic continues, enabling an inclusive, more secure and better financial system that works for everyone.