The COVID-19 pandemic has brought unprecedented challenges to financial institutions, retail businesses, and consumers alike. Non-essential businesses have had to close. Many companies that remain open have had to alter their operations to comply with emergency regulations and address both employee and consumer pandemic-related concerns. Consumers have responded to directives to stay at home and practice social distancing. Those whose jobs are not facility dependent have been encouraged to work remotely. Collectively, these actions have accelerated the ongoing shift from physical to digital payments, shopping, and banking.
To explore the role of cash and ATMs as the retail and banking worlds shift from physical to digital, PaymentsJournal hosted a webinar titled Adapting to the New Normal, Consumer and Retail Changes in 2020. It featuredBrad Nolan, EVP Allpoint Solutions at Cardtronics, and Peter Reville, Director Primary Research Services at Mercator Advisory Group.
Recent Trends in Consumer Behavior
Even before the COVID-19 pandemic, the wealth gap in the U.S. was expanding. According to Pew, the share of wealth held by middle- and upper-income families grew from 60% in 1973 to nearly 80% in 2016. This gap will only continue to widen now that the unemployment rate has reached its highest level since the Great Depression, and is still climbing.
Consumer behavior is changing. Economic circumstances have contributed to the decision of many millennials to postpone starting a family. A greater focus on work-life balance has bolstered the gig economy and led to an increasing number of remote workers who seek flexibility and freedom. Heightened concerns about healthy living and the environment affect discretionary spending. The resale market has seen substantial growth in recent years as millennials and Gen Z consumers have demonstrated they are willing to rent rather than buy. They are renting everything from housing and furniture to tools, technology, sports equipment, clothing, and accessories.
Consumer Payment Trends
A 2020 Health of Cash Study (conducted in late 2019) found that 80% of consumers use cash every month and expect merchants to accept it. The top reasons for using cash are ease of use, security, privacy, and budgeting. Consumers want to choose how they pay, and they want cash to be one of the options available to them.
The global pandemic is likely to accelerate the adoption of digital payments as many reluctant people are now more willing to try it. A recent study by RTI showed that 30% had tried contactless payments because of COVID-19, and 70% of those who tried it said they are planning to continue to use it after the current crisis.
The pandemic and society’s response is likely to shift the balance of payments, as consumers integrate lifestyle changes and alter the decision calculus of how to pay in a wide variety of circumstances. Cash and digital payments will continue to be essential partners. While cash utilization as a percentage of payments is trending down, the number of payments is on the rise, including cash payments which continue to climb.
Retailers and banks are evolving quickly in response to changes in customer behavior. They are focusing on customer experience to develop brand loyalty and collecting data to provide more personalization. As expected, the retail and banking industries are steadily increasing online transactions.
Major retailers, including Bloomingdales, Macy’s, Banana Republic, and Urban Outfitters, are entering the rental market. Brick and mortar stores are shrinking their retail space and consolidating distribution. Self-service opportunities are gaining traction, from placing online orders for pick up or delivery to using ordering kiosks at fast-food restaurants.
Banks have been closing branches over the past decade to cut costs. These closures have hit small businesses in rural towns the hardest. While they can turn to digital banking to meet some of their needs, they cannot carry out cash transactions online.
ATMs were in high demand long before the COVID-19 pandemic. According to a 2018 Mercator Advisory Group survey, 59% of consumers use ATMs at least once a month, and 77% say that avoiding ATM surcharges is an important factor when choosing a new bank. The majority of consumers most often use ATMs at or owned by their financial institutions, thus avoiding fees to access their money. However, younger consumers are more likely than their elders to pay a fee to use ATMs at non-branch or retail locations.
The current crisis has led to the temporary closure of many financial institution branches nationwide. Lack of branch access coupled with social distancing will create a higher demand for ATMs, with many of these new users likely to continue using these self-service kiosks in the future.
The Future of ATMs
Underbanked consumers generate considerably more transactions than their banked counterparts, despite having access to fewer ATM locations. Improved ATM distribution will help fulfill the needs of this population.
Small and medium-sized businesses are critical drivers for ATM expansion. SMBs need the ability to perform remotely many of the same transactions that branches typically handle. In addition, these organizations have specific bulk cash and coin needs.
Consumers want smarter ATMs that can do more. Cash is, and will continue to be, a desirable payment option, but people want choices. Transaction needs go beyond traditional deposits and cash withdrawals. Customers want to use ATMs to manage a variety of banking activities, including loan disbursements, utility payments, P2P transactions, and conversion of cash to digital funds and digital funds to cash.
For financial institutions, future ATMs can help shift many in-person tasks to self-service, potentially reducing capital and payroll needs while connecting more seamlessly to online and mobile banking paradigms. Financial institutions will manage these ATMs in a variety of ways, including tapping into a larger share of on-demand ATM services to expand infrastructure on shared networks.
Allpoint provides a surcharge-free network that meets the diverse needs of ATM users and financial institutions. As Allpoint expands network functionality to include cash and checks deposit as well as mobile cash access, consumers can conduct a broader range of banking transactions, fulfilling more and more of the traditional role of the branch but spread across thousands of diverse touchpoints closer to consumers’ homes and jobs. Financial institutions can shift their focus to digital strategies that meet revolutionary changes in consumer behavior and needs.
For a recording of this webinar, please click the link below: