The future of remittances: what is waiting for payment instruments after the corona crisis

What is waiting for payment instruments after the corona crisis

Coronavirus has changed the lives of more than just fintech and IT companies. With the full transition to telecommuting and the endless adaptation to new conditions, people's habits have also changed. This was especially felt by the payment market players on the example of the transformation of the behavior of their customers.

Self-isolation and social distancing have brought society to online life. And because of the crisis, governments are tightening control over cash flows and payments in general. All these aspects directly affect the development of the global and domestic payment landscape and the future of money. Therefore, businesses that strive to remain competitive must identify these trends and respond promptly to changing needs of their customers, because the crisis is the best time to grow.

How has the behavior of fintech users changed with the spread of COVID-19?

Since the beginning of the pandemic, our product Wirex - a platform that combines traditional and digital currencies in a single application  - has shown a gradual reduction of card transactions offline by 30-35%. That means, people have started to use plastic cards for payments many times less. And this applies not only to Wirex but to all card products in the world. Also, since people hardly withdraw cash, transactions through ATMs decreased, while the number and volume of online payments increased significantly.

This trend is confirmed by the data of the TransUnion agency - after WHO announced the beginning of the COVID-19 pandemic, the number of global e-commerce transactions increased by 23%. This jump is happening because of restrictive measures, people have changed their approach to their communication, work and spending money.

We also see that social distancing and remote work means minimizing the use of cash. People will not work with the transfer of physical value, so cashless transactions are a must-have for every fintech business.

Another challenge the industry is facing is the total transition to online. Standard merchants in any online store will benefit from this, but now they need to reconsider their approaches to processing transactions. Because soon the current infrastructure will be obsolete. This stimulates the development of the industry, as new approaches to online service are now needed, as all customer expectations from the offline service migrate online.

How does financial monitoring affect the payment market?

If we take into account the impact of the COVID-19 pandemic, we see that along with the crisis, anti-money laundering (AML) legislation is being strengthened, so cash flow monitoring and control are being strengthened. As the world becomes more transparent, it is becoming increasingly difficult to launder money, hide profits, beneficiaries and avoid paying taxes.

However, due to this trend, even law-abiding citizens have problems with remittances. Because due to errors in the monitoring system, the number of blocked accounts and payments is growing.

All of this stimulates the development of alternative payment methods that solve the problem of monitoring transfers, such as stablecoins. In essence, these are digitized traditional currencies running on a blockchain. After all, blockchain payments, due to the peculiarities of their architecture, in any case reach the recipients and are completely transparent, which allows you to immediately track all potential risks. By the way, this is exactly what the Bank for International Settlements recommends to do to simplify the monitoring of blockchain transactions.

Therefore, the spread of modernized means of payment is only indirectly affected by the crisis, and the strengthening of financial monitoring has a more significant impact. Because any financial crisis is smoothed out by tightening control over money.

These trends have also affected Ukraine with the new law on financial monitoring, according to which each transaction over 5,000 UAH is subject to additional verification.

For digital money to meet all FATF anti-money laundering standards, technologies need to change. One of the answers to this request is tokenized money and digital currencies of central banks (CBDC) - digital money on the blockchain, backed by national currencies of regulators. According to the head of the NBU Yakov Smoliy, today 80% of central banks are working on research and development of digital currency, and over the next three years, every tenth regulator will issue its CBDC.

Therefore, due to total digitalization, changes in consumer behavior and the active implementation of anti-money laundering legislation will occur; the digital asset market will be actively developing, displacing existing technologies and methods of working with money. In general, the money will remain the same - it will be the same dollars and hryvnias, only they will work differently. However, to adapt to the inevitable changes in time, businesses need to respond to the transformations of today.