Guest Post: Why Tackling Financial Inclusion Will Be Key to US COVID-19 Recovery
By Jan Marc Kuelper, Strategic Business Development USA, eCash, Paysafe
The economic impact of the pandemic has hit many American consumers and businesses hard, and some of those worst affected are the underserved and their communities. Addressing the issues of financial exclusion must be a priority in the post-COVID-19 recovery.
Beyond its impact on our private lives through lockdowns, homeschooling, and remote work, the COVID-19 pandemic has been the catalyst for broader societal change. The impact on businesses has also been seismic. With rapidly changing consumer habits, merchants have needed to react quickly and efficiently to continue operating through the current challenges without losing customers.
One of the critical modifications that businesses have needed to address is at the checkout. Consumers have been paying differently online during the pandemic — and not just because existing customers are developing preferences for online payment methods that do not share their financial details with the merchant (although this is also true).
A key group driving this shift away from card payments online toward alternative payment methods is new customers who, for several reasons, had not participated in ecommerce and other online financial services prior to the outbreak of the pandemic. So who are these new customers? In many countries, such as in the U.S., they include cash payers who are now facing the move to online payments for the first time.
Research carried out by Paysafe during the first wave of the pandemic revealed the extent to which the acceleration of U.S. consumers’ shift to ecommerce was outpacing their reduced reliance on cash. For example, the data revealed that 25% of all U.S. consumers had shopped online for the first time during the pandemic. And while 60% of U.S. consumers agreed that cash was still the most reliable form of payment in a crisis, 49% also said that they planned to shift more of their spending online in the future, even when COVID-19 is no longer a factor, thus indicating that this is set to be a long-term trend.
THE DEMAND FOR ALTERNATIVE PAYMENT METHODS
Financial exclusion, which affects approximately 7 million American households, is clearly a significant factor. Not having a traditional financial product has sometimes posed challenges to new online spenders who would like to engage in ecommerce and make other forms of online transactions such as rent, utilities, or loan payments.
Just paying bills, particularly rent and utilities, is one of the greatest concerns of the underserved. With employees in several lower-paying jobs still receiving their wages or tips in cash, it can be a challenge for them to pay for essential expenses using America’s oldest payment method — and this, despite the simultaneous growth of digital payment systems.
A solution is at hand amid the growing demand from these consumers to participate in the digital economy. One permanent impact of COVID-19 is that businesses that accept online payments should reassess the methods they offer in their online checkout. To grow their target customer base, adding new alternative payment options to serve underserved and cash-reliant consumers seems reasonable.
For example, eCash solutions like our Paysafecash product enable consumers to initiate a transaction via an online checkout but then complete the process at a physical payment point with cash. With Paysafecash available as a payment method at over 60,000 American retailers, including 24/7 convenience stores such as 7-Eleven®, an eCash solution can give consumers real flexibility and choice when paying their bills.
Ultimately, eCash bridges the gap between the underserved and digital commerce by enabling cash consumers to shop and transact online in a low-cost and efficient manner, without having to change their preferred payment method. Online cash may be a relatively new payment method in the U.S., but it has wide and growing popularity in Europe. After launching in 2018, Paysafecash is now available in close to 30 European countries and other global markets.
According to Paysafe’s Q2 2020 consumer research, there is strong demand for eCash as a payment method in the U.S. We discovered that almost half (47%) of American consumers would like to buy products or pay rent online with cash if it was easy to do so, and 43% agreed that they would shop online more regularly if paying with cash was available. These consumers who either cannot, or do not want to, make online payments using other methods such as credit cards, could prove to be a huge target market for businesses in the U.S. in the coming years as we begin to recover from the financial impact of the pandemic.
FINANCIAL INCLUSION BEYOND ECOMMERCE
Reaching out to cash consumers will be important not only for ecommerce businesses, but also for other financial services that must devote additional resources to the big group of potential future clients. As we wrote in another recent article, challenger banks need to seriously consider how to integrate cash consumers into their highly digitized systems, especially in light of competition from traditional banks and technological giants that have also spotted potential in cash-oriented customers.
Interest in putting money in a bank account is generally high for Americans — whereas in February 2020 bank deposits were on the level of $13.4 trillion, in February 2021 they rose to $16.3 trillion, and in March 2021 they already reached $16.5 trillion. Yet those who are considered underserved tend to look beyond bank accounts and traditional financial products in general.
LOOKING AHEAD
When facing a crisis, new solutions must be found that solve issues not only for private consumers, but also for businesses. As the U.S. moves swiftly to reenergize its economy in an era of rapid digitization of services, keeping a focus on financial inclusion and better serving consumers who are either reliant on cash or prefer cash will achieve these goals. Of course, there is an altruistic element to providing financial services and access to ecommerce to the underserved, but there is a significant commercial opportunity as well, which businesses must consider as we look to recover beyond the pandemic.
ABOUT JAN MARC KUELPER
Jan Marc joined paysafecard in 2014 and is responsible for the eCash business (paysafecard and Paysafecash) in the United States. He is also pursuing strategic partnerships to accelerate the international expansion of paysafecard.
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