Digitisation’s impacts on consumer behaviour: here the major trends

By Puja Sharma

As consumer expectations change and the financial services industry fragments, a rapid transformation is taking place in the industry. Digitisation has profoundly impacted consumer behavior and expectations, and the pandemic has had a major effect on both patterns of behavior and technological change, according to the report by YouGov.

Across the 18 international markets surveyed, the use of traditional finance products emerged as the top three activities. Cash payments topped the list (59%), followed by contactless card payments in store (52%) and transacting via a traditional bank account (43%).

Digital wallets are the strongest challenger to the top traditional finance activities undertaken, with over four in ten (42%) consumers reporting using a digital wallet to make online payments. In comparison, consumers’ usage of emerging fintech solutions remained relatively low. Whilst a quarter reported transacting via a digital-only bank, only 15% have made a purchase using a Buy Now Pay Later plan.

Is contactless the future of payments?

Over the last few years, COVID-19 has considerably influenced consumers’ payment behaviors. Initial lockdown restrictions and social distancing protocols triggered a large shift in spending online, accelerating an already growing adoption of digital and contactless payments.

Almost six in ten global consumers (59%) made cash payments in the last three months, followed by just over half (52%), who made a contactless card payment in-store and 42% made online payments via digital wallets. Countries over-indexing on using physical cash as a payment method include Singapore (73%), European countries of Spain (71%), GB, and Germany both on a par at 69%, whereas India indexes on cash payments. By contrast, the US has low levels of adoption of any form of contactless payments.

In the last three months, contactless cards were the top payment method used by consumers in the UK (79%), as well as in the European countries of Denmark (69%) and Sweden (59%) which are leading efforts to build cashless societies. On the other hand, consumers in Asian countries including Hong Kong (60%), China (58%), and Singapore (48%), had the highest usage of digital wallets for online payments. In the last three months, digital wallets were the top payment method among Chinese consumers, likely driven by the ubiquity of digital wallet giants AliPay and WeChat Pay.

BNPL plans to entice the younger consumer

In the wake of the pandemic, whilst price awareness among consumers has heightened, inflation is setting curbs on spending. This has created favorable circumstances for the adoption of BNPL solutions that allow consumers to pay for products and services in interest-free installments instead of one-time payments. YouGov data shows that in the last three months, Indonesians made the highest proportion of purchases using a BNPL plan (27%) – almost double the global average of 15%. A young aspirational population, a large share of unbanked as well as the country’s e-commerce boom are likely the key factors driving adoption. On the other hand, Danes reported the lowest level of using BNPL schemes (7%)

Are consumers ready to embrace a cashless society?

As a result of the COVID-19 pandemic, 2020 saw unprecedented societal and behavioral change which further accelerated the use of digital tools across all sectors. Within banking and finance, contactless solutions were integral to reducing infection rates, as people sought physically safe and secure ways of making payments.

The demise of physical currency has been widely debated, and whilst we have seen digital payments become the norm, our earlier In 14 of the 18 countries surveyed, cash payments are the dominant method of payment.

Whilst in France, Poland, Australia, and Hong Kong, cash and contactless card payments are almost at equal levels. In contrast, contactless card payments surpass the use of physical money in the UK, Denmark, Canada, and Sweden.

Way forward

The rate of transformation and fragmentation of the financial services industry is unlikely to slow anytime soon. Instead, it is only likely to further accelerate as traditional industry players rush to evolve their business models and product portfolios to defend their market share from the proliferation of new market entrants and product innovations.

FinTech has disrupted the traditional banking and finance industry, cementing digital’s position as a mighty capability that can substantially improve processes and impressively enhance customer experience. The advantages of digital are attractive and meaningful to tech-savvy consumers, who seek convenience and seamless experiences from locations and devices of their choice.