Many people only need to look as far as their own bank accounts for proof that the COVID-19 pandemic drastically reduced consumer spending in 2020. What is less obvious to many, however, is the impact the pandemic had on consumer spending patterns. Pandemic restrictions, which required people to stay at home, to work at home, to study at home, to eat at home, and to exercise at home, created a sudden, massive shift to e-commerce. Three times more online purchases and digital payments were made during the pandemic than before. According to Visa, more than half of credit card purchases to the pandemic were done in-person. Since the pandemic, the dominant purchase mode is online and digital “card-not-present” transactions are showing up in brand-new areas – for example, grocery purchases.
The question is, now that vaccination programs are showing signs of increased protection and many consumers are returning to pre-pandemic lifestyles, will these spending patterns persist?
Early observers say yes, this is more than a short-term change. Consumer trends in countries such as Singapore and Australia, which had more success in controlling the coronavirus and experienced shorter lockdown periods, are showing signs that these new patterns will last. Credit card companies in particular have a unique overview of the situation. Consumers were expected to shift to more online shopping and digital payments in the coming years but, according to Visa, the pandemic has accelerated this process by 3 to 5 years.
The need to stay home meant that people were not doing in-person shopping. The shift to more flexible working lives will also support the move to more “card-not-present” transactions. Larger companies with digital infrastructures in place, and small and mid-sized businesses that were able to pivot quickly to e-commerce purchasing (and which had the inventory and delivery systems to support it) were able to capitalize on these specific consumer trends.
Whatever the impact on particular businesses, one overall effect of the pandemic was to accelerate the transition to digital. As fear of virus spread made no-touch purchasing attractive and many stores and customers became less willing to handle and exchange cash, the use of digital pay buttons and digital wallets spread. Prior to the pandemic, many consumers used such payment methods only at certain stores or sparingly – for the occasional lunch or daily coffee. Now, with more availability, customers are used to using digital tools and apps to pay for all kinds of services, including gas, retail, and food delivery.
The prognosis for consumer spending in the post-pandemic period looks positive, too. Deloitte anticipates growth of 7.6% in 2021 and 3.9% in 2022, with most of that growth being directed towards the service industry. People have already started returning to the activities the pandemic prevented them from doing, including dining and eating out, traveling, attending sports and music events, and in-person retail shopping. Most predictions are that service spending will be high as consumers “go all out” to make up for time lost during the pandemic.
The forecast for durable goods, however, trends in the opposite direction. Spending is expected to fall for things like home furnishings, athletic equipment and vehicles. Consumers who made updating home furnishings a pandemic priority have already made the necessary purchases, and it’s too early to refurbish. It’s the same story with those who bought equipment and furniture for that much-needed home office or home gym. Nondurable goods spending is also expected to trend downward as consumers have stopped stockpiling essential goods and are eager to shift their spending to travel, entertainment and dining experiences.
Despite these spending fluctuations, digital purchasing will continue. These spending habits became entrenched during the pandemic when people stayed at home and grew accustomed to the ease and seamlessness of making online purchases for home delivery. Businesses, too, haves adapted to this rapid change by shifting to e-commerce. And as they go digital, consumers appreciate the added convenience of digital and mobile payments.
Though the pandemic was unprecedented, the changes it made in consumer behaviour are here to stay. Businesses will need to lean in to digital to meet these customers both where they shop – from home, on their phones – and, when they’re out, using convenient, secure, and no-touch digital methods they’ve grown accustomed to using during the pandemic. The good news is after so many months of reduced activity, consumers are ready to spend. Businesses who are prepared to meet them will be ready with digital payment methods.
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