With customers no longer frequenting physical stores, reluctant to handle cash and relying heavily on online services to feed, clothe and entertain themselves, the payments industry has had to adapt quickly. The economic impact of 2020 also means that budgets will be tighter in 2021 and, as such, companies are looking for ways to make their payments infrastructure more cost effective and are ramping up efforts to find new ways to monetise financial data, and provide a more seamless customer experience.

Because of these factors, there are three key trends that we should expect to dominate the conversation in payments throughout the coming year. One thing unites all of these:  disintermediation.

Ecommerce continues to revolutionise distribution

The first trend relates to a change in business models, as distribution channels through supermarkets and outlet stores are increasingly bypassed thanks to the pandemic closing down physical stores, and the resulting explosion in ecommerce.

While this trend was already emerging, 2020 accelerated it. Good examples include Nike, Brewdog and Harry’s, whilst Shopify has seen dramatic success in the small merchants needing to go online. This year, we’re going to see an increase in the ‘direct-to-consumer’ play. Brands big and small who previously had a distinct distribution channel e.g. through supermarkets, multi brand outlets or dedicated stores for example, will look more deeply at their distribution models and use technology as the enabler.

As part of this, they will ramp up efforts around their social presence and communication, app, loyalty and websites and embed the payment process, making it almost impossible for consumers to want to visit a third-party physical store. This will in turn fuel the subscription economy and we’ll see consumers increasingly harnessing the opportunities there now are to have things like razors or fitness juices delivered to their doors monthly via an app, as opposed to shopping for them in a supermarket.

This movement of reclaiming direct consumer interactions and cutting out distribution partners presents massive opportunities for brands. They will now have the data – and the resulting insights – gained from controlling more of the payment flow to strengthen relationships and, in turn, revenue, even further. But it is not just merchants who are actively seeking out customers’ financial data to provide a better experience.

Big techs will roll out more payment products

Another top trend will be big tech companies, such as Google and Amazon, continuing to find ways to disintermediate traditional financial services companies in order to own more of their customers’ payment lifecycles and tap into more customer data.

Amazon Pay, for example, is fast becoming a standard payment method for purchases outside of its own website. While at the moment it is mostly limited to Amazon storing your card details to enable one-click payments, we’ll begin to see tech giants start to come up with their own payments products so that they can control the complete flow of the payment.

The natural next step from consumers using the platform merely to access their card, is that they might have a credit line with the platform in question, and offerings beyond buy now pay later as the tech firms disintermediate the traditional financial services supply chain.

Merchants will avoid unnecessary fees

Finally, a trend that currently has less visibility with consumers but is vital for merchants, is the increase in the kinds of Open Banking services available. As more merchants have an opportunity to offer these solutions and integrate them into their payment options, they have a great opportunity to reduce their costs for payments by not using the traditional routes under Visa and Mastercard. The fees required by these providers are high, and this is increasingly an issue as merchants are taking smaller payments more frequently, as the use of cash diminishes.

While these entrenched payments rails have a very important place, offering protection for bigger purchases like a TV or a holiday, they aren’t needed for many consumer purchases. It’s unlikely you’re going to seek a refund and need a chargeback raised for a cup of coffee or an insurance renewal, which is what these big networks are so vital for facilitating. 

When you take these types of credit and debit card purchases, about 30% of them could sit outside of the typical network ecosystem. This is why we’re seeing banks quickly launch their Open Banking services, specifically for these types of scenarios. In 2021, Open Banking is really going to start doing what it was intended to do: increase competition.

So while 2020 was somewhat of a momentous year for payments, change in this space is only going to continue. The effect of the past year on consumers’ shopping and spending habits has been profound and, as such, we’re going to see a key part of that, the payment, also continue to adapt, with merchants and tech giants alike looking more closely at their strategies.