Amex: Merchants See Consumer Demand for Digital Payments as Catalyst for Innovation

It’s no secret that the coronavirus pandemic has helped to accelerate the shift to digital payments — but surprisingly, the need to transact remotely is not the driving force behind these trends. On the contrary, a lot of data seems to suggest that digital transactions were already on a pathway to going digital prior to the pandemic — COVID-19 was just an acceleration of what was already an ongoing transition.

Luke Gebb, senior vice president of Amex Digital Labs, told PYMNTS in an interview that there are two reasons behind the current transformation. The first, and most obvious, is that the technology needed to support the digital payment transformation has only recently matured to a point where it can be relied upon to transact conveniently and safely. Second, the transition of payments from analog to digital is accompanied by an explosion of new financial features and capabilities that weren’t available to consumers before.

For instance, Gebb said that digital payments today come in more form factors and offer far more features than before. There are buy now, pay later (BNPL) services that weren’t available a few years ago, account-to-account (A2A) services like Venmo and Zelle, and even crypto, which offers cross-border transactions, high yield and lending options, he explained.

“You just have this explosion [of tech] and the ability to offer all of these features, and consumers want those features,” Gebb said. “The pandemic, when it came along, added safety concerns around touching cash and getting close to other people, and so it just accelerated this trend.”

Read more: Small Businesses Must Have Digital Tech to Win Black Friday Sales

Seismic Shift in Payments

The digital payment transition is happening everywhere, with people switching cash for credit cards, debit cards and peer-to-peer (P2P) payments, Gebb explained.

He pointed to Amex’s own data that shows how card-not-present transactions jumped by 45% from 2019 to 2020. Amex has seen an explosion of payments volume through its partnership with PayPal and Venmo, he added.

Gebb said consumers are demanding more optionality than they’ve had before, and so the onus is on merchants to provide it. Consumers want to pay using the method of their choice, whether it’s a specific credit card, their choice of bank account or some other emerging method.

Consumers are also demanding greater security in digital transactions, resulting in the adoption of new concepts such as tokenization, where Amex facilitates a transaction using a unique virtual card number.

“Scenarios like that, where security is at the forefront of customers’ minds, will be increasing,” Gebb said. “Also, this notion of having your customer’s back will become more important as payment options expand and get more complex.”

Clarion Call for Merchants

The result is that merchants have to prioritize innovation in digital payments or could risk losing business to those who do. Gebb sees innovation across the entire value chain as essential, from sourcing products to displaying, selling channels and following through with servicing.

You might like: 64% of Firms Move Away From Physical Invoices as COVID Solidifies Digital Shift

“Merchants need to innovate across the whole spectrum, and that is what we see happening among the most successful,” Gebb said. “And the absence of it will certainly be detrimental.” The good news is that most merchants seem to be receptive to that need.

Gebb said there will continue to be a proliferation in the types of payment rails and options as payments continues its transition to the digital realm. He sees yet more growth in terms of open banking interfaces, cryptocurrencies and BNPL.

There will also be more demand for borrowing services and those wanting yield on the dollars they’re holding, Gebb believes, and security will continue to be a major focus.

“You will have this kind of arms race developing between companies that want to have their customers’ back, pushing the envelope on security faster than fraudsters can operate in the ecosystem,” Gebb said.