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How PE can gain from shifts in the payments sector

With Covid-19 raising concerns over the risk of infection from physical cash exchanging hands, the payments industry looks set to see a seismic shift in its modus operandi as developed economies navigate through and out of lockdown restrictions. Private Equity Wire caught up with Ravi Sharma, banking and payments lead analyst at data analytics and consulting firm Global Data, to hear about some of the most interesting trends that will affect the payments industry going forward.

What will drive the shift toward contactless payment usage globally?

The COVID-19 outbreak has raised hygiene concerns and wary customers are increasingly adopting contactless cards and mobile wallets to avoid exposure to disease vectors such as cash and point of sale (POS) terminals. To support this, international payment schemes including Visa and Mastercard are also increasing their contactless payment limits (without PIN) across several markets globally.

The change in consumer attitudes coupled with the rise in contactless limit will drive contactless payments on a global scale. According to a recent survey conducted by Mastercard in May 2020, 78 percent of Mastercard payments in Europe are now contactless which is primarily driven by the pandemic.

What are some of the most interesting advancements recently in the payments industry?
The crisis has prompted countries to look forward towards a robust digital payments infrastructure with contactless, and biometric payments, digital fund transfers being some of them. In line with this global trend, Sweden is also making further advancements in the payment industry. On April 3, the Swedish central bank partnered with the European Central Bank (ECB) to launch RIX-INST, an instant payments platform based on the ECB’s Target Instant Payment Settlement platform, known as TIPS for convenient fund transfers.

The Swedish central bank is also now testing a blockchain-based digital version of its currency, dubbed e-Krona, as an alternative for cash. These moves will further propel the adoption and use of electronic payments in Sweden.

What’s the outlook for the contactless payment sector in the next few years in terms of growth?

The pandemic has accelerated the adoption of contactless payments and the shift in payment choice will continue even when the outbreak ends. The contactless market is already well developed in countries such as the UK, Sweden and Australia, and the pandemic will make contactless a new normal in these markets in the next few years. 

According to GlobalData’s 2019 Banking and Payments Survey around 6 out of 10 Swedes had a contactless card. Furthermore, the growing acceptance of contactless payments will also benefit NFC-enabled mobile wallet solutions such as Apple Pay, Google Pay, and Samsung Pay.

What will this mean for companies like PayPal, Klarna, Swish and Masterpass?
While contactless is preferred for in-store payments, online spending is likely to surge as wary consumers are staying home and using online channels to purchase goods amid growing consumer fears. Though the pandemic may be a short to medium period, it will have greater implications on the e-commerce market with consumers increasingly switching from in-store to online purchases. Online payment solutions such as PayPal, Klarna, Swish and Masterpass are likely to benefit from this trend. 

How can the private equity sector take advantage of the shift towards contactless payments?
As contactless technology is gaining greater importance, private equity firms can look forward to investing in the cashless future of retail. The shift in consumer preference towards contactless will spur a demand for contactless terminals, payment processing, and payment security.

In addition to payments at merchant outlets, transit payments are also increasingly going contactless. Riding the digital wave, companies operating in this domain will be an attractive investment option for private equity firms.

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