Oct
12
As if we need more reasons to long for the pandemic’s end
There is no shortage of articles that, while acknowledging the horror that is the COVID-19 pandemic, observe or predict a resultant upswing in digital payments. More frequent use seems all but assured by the need to self-quarantine and shop from home. I have discussed as much in this space, including here, here, and here.
Which is why this recent Finextra headline caught my attention: “Payments revenue growth forecasts almost halved under brightest post-Pandemic outlook.”
Huh? Halved? What about all that talk of an inevitable upswing?
Finextra continues:
Annual global payments revenues could reach $1.8 trillion under a quick Covid-rebound scenario, according to data from the Boston Consulting Group, representing a considerable slowdown in growth from pre-pandemic boom times … Under a quick-rebound scenario, BCG’s outlook suggests that the global payments revenue pool will expand from $1.5 trillion in 2019 to $1.8 trillion in 2024, a compound annual growth rate of 4.4%. Although solid, this CAGR is much lower than the 7.3% annual growth the industry enjoyed from 2014 to 2019.
Yet it makes sense to lower expectations. While an increase of digital payment users would seem to follow from pandemic restrictions, an increase in use is another matter.
Going pants-less
While self-quarantining has increased the need for online shopping, it has diminished the need for many types of consumables. It wasn’t entirely surprising when CNN reported a measurable decline in pants sales in the pandemic’s early stages, which the phenomenon of pants-less Zoom meeting participants aptly symbolized. Per USA TODAY:
As working-from-home and teleconferencing become the new norm during the coronavirus pandemic, an executive from Walmart told Yahoo Finance on Thursday that there’s still a demand for presentable work shirts—but that there’s not much of a need for work clothing below the waist … As working-from-home and teleconferencing become the new norm during the coronavirus pandemic, an executive from Walmart told Yahoo Finance on Thursday that there’s still a demand for presentable work shirts—but that there’s not much of a need for work clothing below the waist.
There are other items and services that consumers suddenly manage to do without. Streaming is up, but theater ticket sales are down. Though people order meals via Grubhub and DoorDash, they cook more at home than before—partly to cope with lockdown boredom—which takes a heavy toll on the restaurant business. Indeed, the entire hospitality industry is suffering. Hotel vacancies are at an all-time high, airline ticket sales are down, and the cruise industry, if not on its last legs, is putting its legs on hiatus. As CNN Travel reported:
Hundreds of cruise ships that were sailing around the world earlier this year are largely now laid up at sea, with no passengers on board. There are many more vessels mid-construction, commissioned to meet the demand that characterized years of growth pre-2020, back when the $150 billion industry was booming. The result? An excess of ships. Cruise ships that once ferried passengers on vacations around the world now lie ready to be sold for scrap. This—teamed with financial difficulties arising from months of disruption—means some cruise companies are retiring ships earlier than expected. In September 2020, Carnival Corporation announced plans to sell 18 “less efficient” cruise ships in the coming months, resulting in a 12% reduction of its overall fleet.
Politico lists 11 other, less talked-about industries hard-hit by curbed spending, such as private investigation, pet-sitting, and tattoo parlors.
Not to be overlooked is the fact that millions of people simply have less to spend. Many aren’t earning and, therefore, not spending at all. The U.S. Bureau of Labor Statistics reported:
Of the 16.9 million people unemployed in July, 9.6 million (57 percent) were unable to work because their employer closed or lost business due to the pandemic. Among the unemployed, the vast majority of those on temporary layoff in July were unable to work because of the pandemic (78 percent).
Teenagers, PIs, tattoo parlors
Even teenagers are spending less. “Teen spending hit an all-time low during the coronavirus pandemic, according to Piper Sandler’s 40th biannual ‘Taking Stock with Teens’ report,” wrote Lauren Thomas for CNBC. Moreover:
Piper Sandler surveyed 9,800 consumers with an average age just under 16 from 48 states, with an average household income of $67,500. The survey, released Tuesday, was conducted between Aug. 19 and Sept. 22. Apparel spending came in at about $507 per teen per year, down 11% from last fall. Females, on average, are spending about $160 more on clothes than males, the survey said.
There’s no telling when the pandemic will abate to the point that business throughout the world returns to normal—whatever “normal” means. But the pandemic’s effects are farther-reaching than many might imagine. The markets will likely take a long, long time to recover.
Another big reason for the lower growth in payments is the huge hit to the commercial sector – while consumers have found other places to spend the money they are not spending on pants and concerts, businesses are spending much less on travel and entertainment, as well as hospitality and conferences. When I was at Mercator, my colleague Steve Murphy was forecasting a much bigger drop in commercial cards worldwide than we were seeing on the retail side. With Europe undergoing a second wave, I expect the suppression of commercial card activity to continue into 2021.