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How the pandemic accelerated the shift towards cashless payments

Visa and Mastercard are postponing plans to increase merchant fees in the U.S. to April 2022 to help the recovering economy. Is this a display of listening to their consumers or fear of legislation risks? In this article, we  touch on this news, highlight the latest trends in cashless payments, online payments fraud, the reason behind this delay, and will touch on what this news tells us about scheme duopoly.

25/3/2021

But why did these fees have to be increased in the first place? To understand the potential motives behind MC and Visa’s decision, It is important to examine how cashless payments have evolved in 2020.

2020, the year of digital payments

As we covered in a previous episode, the pandemic and shift towards cashless payments have driven entire new customer segments to use and favor digital payments. In fact, nearly 50% of global shoppers expressed that they are using digital payments more than ever before. Evidently, contactless cards are the top payment methods benefitting from this change. What we also witnessed is that in the US alone, e-commerce spending grew by 93% year-over-year in the month of May.

US digital payments market size has been growing 2012-2025
U.S. digital payment market size. source: grand view research

According to industry data, this rapid shift to online payments fuelled the growth of fraudulent online card transactions, which often results in losses for merchants. In fact, it was estimated that at the end of 2020, the U.S. was seeing about $11 billion worth of losses due to credit card fraud.

And while it is important to note that Mastercard updates its interchange fees semiannually, it can be argued that the need for technologies to keep online fraud at bay has accelerated the decision to boosting interchange fees.

Now that we know how online payments have been evolving in 2020, let’s examine the events leading to this last-minute delay of the planned fees increase. 

The networks faced major backlash

Visa and Mastercard's plans have caught the attention of Senator Dick Durbin, the US Democrat who previously helped limit fees on debit-card transactions.  “We urge you to call off these planned fee increases,” Durbin wrote in a letter to the networks. 

Buy now, pay later popularity is soaring

What is once again worth mentioning is the boom BNPL solutions are experiencing. It is evident that BNPL solutions are becoming a shoppers favorite. So much that many are starting to wonder whether it will disrupt the $8 trillion credit card industry, especially now that research revealed that the phrase buy now pay later is being mentioned more than ever.

Buy now pay later has been soaring in popularity
Raising popularity of buy now pay later. source: Sentieo

Litigations against the networks

Additionally, both networks have been sued earlier this year over 'price fixing’, which has people thinking that could've been the motive to postponing the fee increase.

So, after looking at the recent developments in the market, we can’t help but wonder whether the networks’ decision to delay these plans was a response to the reeling economy? OR is this decision made to minimize the risk of being substituted by BNPL solutions?

What is particularly interesting about this news is that both networks announced the delay at the same time which supports scheme duopoly. This timing has raised eyebrows and some even described this as “duopoly to the core”.  

MasterCards fees hike for the UK merchants

As we’ve covered in our episode on Mastercard’s increase of UK interchange fees post-Brexit this announcement has received major backlash, especially during a time where merchants are suffering and have become more dependent on online transactions.

Hearing this news gives us some hope that the fees hike in the UK may also be held off since the UK economy has also been suffering during the pandemic. Do you think Mastercard would listen to UK merchants and postpone their rise in fees too?

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