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.