In a post-pandemic world, the most resilient payments players will be those with the flexibility to make dynamic, real-time changes.
The primary authors for this article are Jennifer Lucas, EY Americas Payments Consulting Leader and Patricia Partelow, EY Managing Director, Financial Services Consulting.
Resiliency has always been a key component of modern global payments ecosystems; however, the COVID-19 pandemic has changed our definition of the concept. Previously focused on “system backup,” a resilient payments system or function was one that could continue operating with little disruption in the face of a technical issue, natural disaster or even a terrorist act. Operators worked to achieve and regulators expected systems uptime (99.999%) and the ability of key capabilities “fail over and stay” to avoid any hiccups in payment operations. The aim was not only to ensure seamless operations and customer experience, but also to instill confidence in the stability, and “safety and soundness” of the payments system.
But COVID-19 has presented a very different type of disruption. Its impact requires us to rethink payments resiliency, expanding the definition beyond system and operational uptime to include the dynamic flexibility of systems, products, processes and the workforce. COVID-19 did not cause a technical or systems outage, but it did create challenges for workforces and for traditional rules of payments. The pandemic’s sharp and sudden impact on many people’s employment and financial circumstances gave rise to a new expectation that these rules should be able to flex dynamically, to accommodate shifting customer needs in almost real-time.
- Credit card holders were seeking the ability to “skip a payment” with a press of a digital button. This would allow them to deal with a sudden cash flow loss, or to dispute payments for products and services they could no longer use because of COVID-19, i.e., health club memberships or concert tickets.
- Public health directives to avoid the handling of cash led to a call to quickly increase the transaction limits for contactless payments. In the US, the existing “no signature” requirement for card transactions was reinforced.
- Store closures meant payments processors were called on to create – almost overnight – new solutions. These allowed merchants to move commerce online or deploy hybrid “click and collect” options that enabled customers to buy online and pick up in-store.
- Government support and stimulus packages needed to be disbursed in real-time to consumers and business. The rise in digital welfare payments, such as SNAP in the US, put pressure on more payments methods to accept these forms of payment.
- Payments companies’ call centers previously focused on travel and concierge services were quickly repurposed toward hardship programs and loans.
- Loyalty programs shifted quickly to accommodate changing customer behaviors and needs. For example, credit card programs that allowed customers to redeem points for travel switched to offering cashback rewards for grocery purchases.
Dynamic resiliency – the flexibility of systems, products and people to accommodate changes quickly – is the “new normal” for payments.
Few schemes have digitized the end-to-end customer experience
But creating resilient, flexible payments systems is not simple. The challenge is that while many payments systems, particularly in the US, are well functioning and highly resilient, they are built upon archaic technology with limited flexibility for change. Mainframes, disparate data stores, and on-premises platforms, combined with “waterfall” implementation methodologies, create services that function as designed, but cannot change at speed.
Many payments organizations have invested in modernizing the “client experience,” but have stopped short of digitizing this experience end-to-end. For example, it’s easy for customers to go online to onboard, apply for credit and pay, but exception services – claims, disputes, chargebacks and collections – are generally slow to be digitized.
During the crisis, we’ve seen a spike in calls to providers for economic relief services that could easily have been solved with one click of a button. Pockets of modernization do exist – some credit cards were agile enough to almost immediately raise thresholds for contactless payments – however, very few have dynamic products and supporting systems that could fully adjust to the opportunity at hand or end-to-end. For example, how many rewards cards offer customers the ability to change their rewards categories (e.g., from travel to grocery) whenever they want?
COVID-19 has both exposed the inability of many payments providers to pivot to support changing client needs, and highlighted the competitive advantage of those that can. Players that can dynamically respond to situations never previously considered in a resiliency playbook are winning.
