Blog 3: The Consumer in Lockdown
In this third blog, I want to share some views on what the Coronavirus
lockdown could mean for consumer behaviours, payments and FinTech. In this
period of lockdown, consumer needs will not go away - but how we meet and access
them could change radically. Whilst much is being written on crisis management, we should not lose
sight of the strategic implications of what could be a profound change in how
we live our lives and our relationship with digital technology.
I had planned for my March blog to write about the excellent NextGen Payments Forum in Malta where I
gave the opening keynote. However three weeks is a long time in 2020 and the
singular thing top of everyone’s mind at the moment is the global Coronavirus pandemic.
It therefore seems most timely to write some initial thoughts on how the crisis
may impact consumer behaviours, and therefore payments and FinTech. Upfront, I
should state that I am no expert on epidemiology so cannot offer any views on
how the virus will progress. Similarly, we cannot estimate nor predict the
personal or family impact of the virus. Even if not impacted though, one common
theme of all the measures being taken is that wherever you are across the
world, we’ll be spending an extended period of time at home, not weeks but
possibly months or up to a year.
Payment technology is already playing a role in reducing the spread of
the virus in the physical world. With reports suggesting that the virus can remain
on physical cash for up to 17 days and cashiers at an elevated risk of infection, an
increasing number of shops have started taking contactless or moving to
contactless only. The effect could be a non-linear shift away from cash and
towards electronic payments, accelerating the trend that has been evident for
the last few years. Moving the contactless limit in the UK up temporarily or
promoting the use of mobile payments (where there is no transaction limit)
could further exacerbate this movement.
However, digital models can play an even greater role in dealing with
the situation and could be propelled by the sudden dislocation. Whilst the
business news talks of very real fears of a global contraction and recession
with severe risk to jobs, there will be radical divergence in companies and
sectors that do well and those that struggle to survive. My fundamental insight
is that in this period of lockdown, consumer needs don’t go away - but how we
access and meet them will do. In particular, the need to eat and drink, the
need to be entertained and the need to live in a good environment will not go
away. The solutions to meet these needs will accelerate the shift from physical
business models (shops and stores) to digital models predominating in the
physical world.
Take food and other essential goods. People will still need to feed
themselves during the lockdown but how they access that food will change
rapidly. Already in the UK, consumer demand has overwhelmed Ocado and the
delivery services of the major supermarkets. In the situation where we are told
to stay at home and we want to avoid contact with other people, those that can
afford it will want their groceries brought to them or collect them from a
local depot. Digital models that offer order online or in-app, with home
delivery or click and collect fulfilment will therefore be in demand – and could
speed the decline of physical supermarkets, amongst others. And in a situation
where no-one can go to restaurants but consumers would still like to treat
themselves to a nice meal, ensuring that your restaurant is able to service
take-outs, and is making full use of platforms like Deliveroo or Just Eat, may
be necessary for commercial survival.
Similarly, people will still look for entertainment when they cannot go
out. People are likely to feel cooped up and bored quite quickly, and there are
multiple risks to mental health. Digital content and streaming services are
likely to become even more consumed than at present. I can also foresee the
turbocharging of the growth in esports and gaming. Physical cinemas, theatres,
pubs may need to reinvent themselves as virtual venues or transform their content
into digital services - as we are already starting to see with Universal
Pictures’ announcement of the simultaneous
release of new films on streaming, curated film services like Curzon 12, and nightly free performance
streaming by the Met Opera.
An even bigger challenge is around discretionary spend, both from a
share of mind perspective (does having the latest gadget matter?) and affordability
perspective (can I afford that thing when my job and finances are uncertain?).
In this context, to sell their products, manufacturers will need to bring them virtually
into our homes. Successful use of technologies like AR, where items are
superimposed on the consumer’s house (like IKEA Place), or live video feeds
(like the Skoda virtual showroom), which have been
seen as ‘nice to haves’, may become essential for retailers. Conversely as we
spend more time at home we may become more focused in improving our home
environments, even in small ways. For example, house plant delivery services could do well…
What this all means for payments is first of all that payment and
finance providers will be looking very carefully at their risk levels as,
particularly on the acquiring side, sectors previously thought solid may become
much riskier. They should also look for ways to support consumers to make
greater use of digital payments and avoid financial exclusion. More fundamentally,
the affordability issue in particular will accelerate the trend towards
pay-to-use models: in other words having access to rather than outright
purchasing of consumer goods (see Monty Space for example). And over
time it may be attractive to the consumers to combine multiple delivery
services into fewer or a single subscription to provide the essentials for
their life.
For FinTechs, VC’s like Sequoia Capital have produced some valuable
advice on how to weather the immediate ‘black swan’ event. For many FinTechs who
raised funding recently and so have cash available, the crisis should drive a
tighter focus on delivering products to what consumers really care about and
use - rather than a shiny me-too. FinTechs that can address the need for emotional
support and empathy - and even some lighter fun - in time of dislocation and difficult
news could paradoxically strengthen relationships with their customers.
Of course, none of this compensates
for, nor should be seen as mitigating, the huge humanitarian cost of the pandemic.
The big unknown though is the overall impact of the crisis and how long the
measures to deal with it will remain in place. If it is a matter of weeks, then
people may make temporary adjustments to their lives and then bounce back to
their previous behaviours. If it extends into months or many months then it is
likely that more permanent changes in behaviours will take place both in terms
of patterns and providers. Consumers may find that after an enforced shift to different
ways of living that they actually prefer those behaviours and stick with them
even after the lockdown ends. If so, the combination of this black swan event with
underlying trends will have resulted in a transformation in how we live our
lives and a reconfiguration of our relationship with digital technology.
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