FintechFinancial marketsCOVID-19: A Year in the Payments Ecosystem

Kennnedy MuturiFebruary 4, 202342517 min

In the world of payments, being invisible is attractive.

Exchanging, routing, and transferring funds among buyers and sellers are the oldest, most important — and often most difficult — financial services functions. Many of today’s greatest prominent examples of successful innovators, such as Stripe and Plaid, perform some of the most unseen functions while gaining notoriety. In light of this, we wonder how forces resulting from the COVID-19 global epidemic are reconfiguring this increasingly visible ecosystem.


This foundational Fintech subcategory spans a wide range of financial services subsectors from lending and wealth management to investment and capital markets. The effect of the COVID-19 global epidemic on payments reflects the category’s scope and depth: individuals, communities, businesses, governments, and economies use a mode of payment and layouts, including cash, credit/debit cards, ACH, e-wallets, and cryptocurrencies. Payments are thus a horizontally — as well as vertically-oriented category.

Some of the following players have a different perspective on payment technology than the next and is feeling the impact of COVID-19 asymmetrically:

  • Cash enablers, such as G+D printing, Diebold Nixdorf and NCR ATM manufacturers, and Brinks and Loomis cash handling companies.
  • Payment networks and credit card schemes like Visa and MasterCard assist banks and card issuers in moving money among a growing network of cardholders, merchants, and other money transfer endpoints.
  • Traditional merchant acquirers and card processing units like First Data and TSYS are collaborating with point-of-sale (PoS) hardware providers like Ingenico and VeriFone and newer players like Square, SumUp and Local, to “democratize” acceptance for small businesses. PayPal and payment infrastructure enablers Adyen are examples of online/ e-commerce payment processors.
  • Remittance and Forex companies such as Western Union, MoneyGram, and CurrencyDirect, as well as newer companies such as Transfer Wise and Remitly.
  • Payment Enablers and Subcategories aimed at security, fraud protection, loyalty programs, wearable technologies, analytics, and other payment-related issues.

The above players can be categorized or divided in a variety of ways. Still, we chose to highlight the above to show the breadth of the parties involved and the diversity of their recent experience in the payment ecosystem.

We can simplify several plot lines, make some broad assumptions about their direction, and highly influence our investment decisions by examining each against the five force factors we see manifesting from the COVID-19 disease outbreak.

COVID-19 has had a wide range of effects on payments. Payment flows are a fundamental economic facilitator, and they will continue to exist at some level because they are so deeply rooted and essential to people’s and businesses’ daily lives. As a result, bill payments, retail food purchases, corporate treasury operations, and securities transactions may have been disrupted or unevenly flowed, but they have largely remained in place. However, in terms of the form factor(s) involved, this is an exciting area to watch from our vantage point.


Banking institutions, governments, and regulatory agencies in severely impacted countries or regions will do whatever it takes to move money quickly.

The uniqueness of the digital format is underscored by the fact that it has been within reach for stimulus initiatives implemented by many countries around the world.

The need for speed highlights the benefits of digital payments. It elevates their adoption as appropriate at the individual or corporate level and the level of state economies.

The five factors we found tend to intercept the operations of the ecosystem players we mentioned earlier exposes the pulse of COVID-19’s current impact on the payments sector.

Dispersal: Immediate Exposure and Vulnerability of Those Not (Yet) Digitally-Enabled

The pandemic’s economic consequences have hard damaged the travel, tourism, and hospitality industries. Brick-and-mortar payment processors have also suffered, whereas online/e-commerce-focused processors have seen a 25 per cent to 200 per cent increase in revenue and volume [1]. Smaller card issuers with thinner cushioning are also likely impacted as loss rates rise due to job shifts. The pressure to become digital is more intense than it has ever been. Physical procedures and paper documentation will be eliminated across the value chain. Thus providers who can help will be in high demand.

Inertia: The Threat of Fraud and Overcoming Resistance to Change

As governments attempt to mitigate the impact of the crisis on small enterprises, freelancers, and the unemployed, fraud is on the rise. These companies are well aware of the hazards and vulnerabilities that the sudden digitization of their operations could entail. However, if these dangers cause too much pause, an unintended consequence of a long and drawn-out survey of providers in the market could result in a lot of resistance to change that has to happen quickly.

Another aspect adds to the likelihood of indecision about the best next step: businesses moving money to and from customers, suppliers, and employees will need to discover new ways to do so, especially if these forms previously relied on checks. Those who cannot organize these resources quickly enough to effect change may find themselves unable to contribute to a turnaround. Amid the pandemic, the local government of Qingdao in China gave coupons via Tencent’s WeChat Pay infrastructure to stimulate fast expenditure.

At this point, financial services incumbents and payments innovators have the chance to collaborate.

Payment providers, both old and new, will become increasingly important in overcoming today’s issues, particularly those posed by analysis paralysis, by ensuring that money is getting to the appropriate companies and individuals for the right purposes at the right time and executing on it safely.

Compound Payment Data Opportunities and Security Challenges in the Digital Volume: Blurred Lines at Home and Work

Consumers, employees, and businesses have already spent a year experimenting with transferring functions online at a rate never seen before, thanks to lockdowns and social distancing techniques.

Individuals’ activities as employees and customers are increasingly entwined as their computers at home become their portals to the rest of the world. Although the data throughput is higher in bulk, providing more opportunities to interpret the information gathered, there are also evident concerns. Employees use online shopping, food delivery, and home entertainment while working from home, using online meetings, file sharing tools, and other tools; payments, subscriptions, and personal/work accounts undergird it all. While this increases the number of digital payments, it also increases the risks of online fraud, account hacking, and phishing attempts, turning the payments industry into a cybersecurity struggle.


Segmentation: The proliferation of niche players is accelerated by the emergence of niche needs.

Even in a recovery scenario, a post-COVID-19 environment will likely lead to a segmentation of transferrable, stored-value assets and their supporting infrastructure. In April 2020, a Mastercard survey of 17,000 card users from 19 countries found that over 80% of respondents believe contactless payments are a safer method to pay. [2] If the cleanliness sentiment holds, it might drive additional adoption in underserved markets like the United States, offering a lucrative potential for both issuers and PoS providers.

Is this the largest opportunity to modify consumer payment patterns since the invention of the credit card if the pandemic serves as an accelerant to a change in enterprise behaviour?

Contactless payments are a good example of a niche feature (or even a specialized subcategory) growing in popularity. Transaction security providers are another emerging speciality subcategory specialising in anonymizing and tokenizing identities to disguise personally-identifying information (PII).

Niche companies could progressively serve these unique needs and play specific and crucial roles in an increasingly segmented payments stack. Can we expect increased prowess among aggregators and aggregators of aggregators if this is the case?

Large payment infrastructure players with a diverse set of payment features will have to consider how (or if) to accommodate, cooperate with, or acquire smaller companies.

Payments are necessary for survival. Players can either stick to current market trends or create new ones.

To improve their chances of survival, startups and established companies in the payments arena must stay close to, plan for, and adapt to market movements, lest they be overtaken by those pushing the envelope of market paradigms.

Cash withdrawals, for example, spiked in numerous places at the start of the epidemic, followed by a shift to contactless/card-based payments at establishments that provide vital services. This compelled pharmacies, bakeries, kiosks, and grocery stores to accept credit cards, resulting in a growth in online delivery services for the related commodities.

As the effects of the lockdowns fade, expect more changes in the services provided by businesses and the payment companies that facilitate their transactions. In the case of cashless payments, this opens up new opportunities for players to align with macro payment trends, and these businesses can support these modalities. These developments constitute a threat to the status quo in the case of high-touch, cash-based payment methods.

Kennnedy Muturi

Ken is a Quantitative Trader with experience in investments, quantitative finance, financial modelling and algorithmic trading in Global Investable Markets (GIM). He enjoys using Bayesian Statistics, Time Series and Machine Learning in developing Robust consistent Alphas in Equities Market, FX, ETPs and Derivatives instruments. He enjoys deep dives in understanding High Frequency Trading infrastructures and improving how the African financial markets work. He holds a Bachelor's in Actuarial Science from Strathmore Institute of Mathematical Sciences : An Executive Program in Algorithmic Trading (EPAT) certificate in Algo Trading from QuantInsti : A current MSc student in Financial Engineering at World Quant University.

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