Today’s guest on the Tearsheet Podcast is Steve Villegas, vp of payment partnerships in North America for PPRO. He works with acquirers and payment service providers to give them a single integration to offer a variety of local payment options to their customers.
We explore a recent whitepaper PPRO published about how COVID has impacted consumer spending around the globes and disrupted payments particularly in cross border markets. We also discuss how the needs of the various players — from merchants to consumers — have changed during this period.
In our Payments in the Time of Social Distancing white paper, it really highlighted some key things that we are seeing in the marketplace and really looks at the first six months of this year. And some of the transitions are obviously retail shopping — we saw a really large decrease because of foot traffic. It led to a massive shift in ecommerce.
Before COVID, growth in ecommerce varied in markets around the world, where you would see typically 10% to 20% growth annually. And you move a few percentage points up in each region each year. That really fast forwarded to like 50% growth in the first three months of dealing with COVID-19.
In the US, ecommerce has been around 12% of retail. We’ve seen that grow to like 18% this year. So it’s almost like we took five to 10 years of fast forwarding in just that short period of time. And that really has to do with consumer behaviors changing. When retail first closed, you saw the shift to many online ways of either ordering food or groceries online or going and picking things up — you saw the growth of ecommerce. And that really is a big piece of it.
And when retail actually did open up, the other thing that we saw from some of the trends takeaways was that contactless saw sizable growth. So, obviously, you think about going into stores and social distancing. And everyone’s wearing masks and not wanting to touch things. Contactless has a sizeable advantage there, versus hitting the keypad with your debit card or credit card. And so we also saw people using cash less and even in some cases, retailers moving away from cash when possible.
From PPRO’s perspective, we saw some of the dramatic growth in several ecommerce areas. We saw women’s clothing increase by 311%. Interesting enough, food and beverage purchases were also up 285%. And that’s obviously indicative of consumers shifting their shopping online, whether it’s pickup or delivery. One thing that we noticed is there was a tick up in online gaming, whether that’s by adding some gambling, but also video games. We have several partners that support that segment and certainly saw sizable growth there, especially right after schools went online or shut down for the summer.
How global payment service providers responded to the pandemic
First of all, for most of our partners, I think the majority of people are still working from home here in the US. That’s an adjustment from a people side, right, so it definitely packs your day and you’re talking to a lot more people now from an actual business perspective.
They’re certainly seeing a shift to a greater focus in ecommerce where many of the PSPs or acquirers that were very retail focused have had to come up with a strategy around helping their merchants move online for the first time or growing their online scope and trying to find the right partners.
And, you know, overall, we see many of the companies through our PSPs thinking about how they make sure that they’re maximizing their offers. So this goes to the shopping cart. How are they ensuring that the complex is made simple for consumers? And it really has highlighted the consumer shopping experience. I think we all know the Amazon touch on things and how Amazon has made it very simple to shop. And I think most retailers want to be able to provide a similar service so they can compete — whether it’s a retail good or service that they’re providing.
And I think our partners are trying to help their merchants modify to that. Whether that’s involving other partners, or whether it’s improving the experience where we fall in, it’s really ensuring that they have the right payment mix and that they’re providing the right payment options. And what we see globally, you’re talking about local. You want to make sure you’re offering the right payment options.
And it’s not just about card. In fact, if you look at some of the stats that we have, globally, around 77% of the ecommerce purchases this year will be made in some form other than a credit card — meaning, it could be a bank transfer or e-wallet or maybe it’s a pay later, or it could be a cash based method, even where you have a consumer going to making a purchase online, but then they go to a convenience store to purchase a barcode.
U.S. challenges around payment options
From the US perspective, you’re talking about cross border. PSPs have to make those adjustments and ensure that they’re educating and working with their merchants in a way that helps them expand their business and their footprint to continue to be profitable.
Cross border has continued to grow. And you think about the US itself, somewhere around 5% of our ecommerce transactions have been cross border. And if you think about us, of course, we’re very consumer centric within the borders of the US with some cross border, but we see growth there. I think we’ve seen that significantly grow over the course of the last quarter. And that’s really where you have more consumers having more time, maybe at home, like many of us are doing more shopping, doing more investigating online, and finding other places they can shop besides just here within the US.
Cross border in Europe
There are so many countries where you’ve seen some interesting shifts in consumer shopping. For example, we saw huge growth in Poland with Polish shoppers buying goods and services from Luxembourg. Consumers, especially younger shoppers, are using one of the newest mobile methods in Poland called Blick. And so luxury goods in Luxembourg or other products and services offering Blick through a cross border method have been able to pick up sales.
And we also saw things like shoppers in the Netherlands buying lots of products out of Ireland and out of Cyprus using iDEAL. That’s a bank transfer method that connects to all the banks. That’s what their preferences are. Over 60% of the consumers there use that method when they’re shopping online. So we saw interesting shifts like that.
Of course, country to country shopping really extended into China, Brazil and Mexico. We saw a lot of shopping out of those countries as well. So it’s been an interesting time.
Options in local payments
I think we’re seeing some new methods where countries that historically were maybe very heavy cash, or maybe more non banked, or you’ve seen them have a traditional method. And they’ve moved to more of a mobile method. For example, I mentioned Blick in Poland. That’s a method that’s been around for just a few years now. But it now has been one of the fastest growing methods in Europe because of the mobile enablement that it has, in a 1-click shopping capability and things like reoccurring payments. So you’re seeing some new technologies that are coming online in various markets that may help to leapfrog older technologies that would have served the previous generations. That’s where the expansion is.
But you also see consolidation happening in some of the payment methods, where methods may come and go and form a joint force in order to to solve other market problems collectively. So it’s an interesting time — as technology continues to advance, you’ll see advancement of other payment methods as well. You think about China and the ewallets, Alipay and WeChat Pay. And those have been significant for the last few years. But they’ve taken on an even greater amount of significance during the course of the last several months.
There are opportunities in certain markets, for sure, especially if somebody can continue to figure out how to build the bridge around banking technologies. Think about what’s happening in Europe, and what’s happening with PSD2 to open banking, and the opportunity to collectively work with the banks as open banking takes place, and to provide technologies that allow the banks to continue to keep their piece of the pie, but enable new technologies. That’s where I think we’ll see more of the startups find that niche.
And you still have emerging markets like India, where Rupay and Paytm and others are starting to really dominate. They’re starting to expand into more cross border opportunities. We’re working with them right now, as well as with the banks. And then you think about Africa, Mpesa has really established a lot to several countries there. But there are other methods that are going to continue to grow.
The rise of buy-now, pay-later
The rise of the pay laters fascinates me from the perspective of understanding consumer adoption. When people wanted to buy something, they used to use credit cards, or put it on permanent credit card and collect it this way. With the pay laters, it’s a little bit different of a dynamic. You’re seeing a shift in consumer behavior. So I’m interested to just see what the evolution of that is. Will it turn into another consumer line of credit? Or is it going to stick with a traditional pay later, where you’re able to slice up your purchase into several payments? Is it going to take on other form factors? Are banks going to start to look at that as an option versus the traditional types of cards where you’re paying an exorbitant amount of interest in some cases? It’ll be interesting to see what happens in that in that space.