holiday season
Europe Paytech Weekend read

Festive Spending 2021: Payment Trends and Industry Concerns

With Christmas just around the corner, preparing for the festivities is at the top of everyone’s priority list. However, shoppers must be vigilant this holiday season. Account takeover fraud saw a near 3000 per cent increase at the end of November during Black Friday and Cyber Monday (BFCM), and shoppers should be wary of fraudsters in the lead up to Christmas. Read on to hear about the latest payment trends, including Buy Now Pay Later (BNPL), and industry concerns from Vyne‘s CEO Karl MacGregor and Oxygen‘s Garry Ottosen.

Christmas Spending – Ease of Access

As we near Christmas Day itself, the panic to ensure everything is prepared to celebrate with friends and family only increases; with this panic comes a tendency to spend more money. WorldRemit has found the majority of British households spend over one-quarter (26 per cent) of monthly income on Christmas, with the average cost of Christmas per British household being £577. But where is this money being spent?

xmas budget
The ever-growing list of Christmas necessities

 

Shopping for presents and food has largely taken place online, in large part due to the pandemic’s restrictions, however, this number may not be as large as some people imagine. Overall, 60 per cent of shopping was done digitally according to the latest Generation Pay research by Worldpay from FIS. Vyne, the account-to-account payments platform, also released research on a similar topic: analysing the abandonment of failed transactions. Ease of access has been a recurring theme throughout 2021 and will likely continue into the new year too. As customers shop digitally, they begin to have certain payment expectations from retailers. The report revealed that just 40 per cent of respondents felt that retailers always meet these expectations. Regular online shoppers abandoned their baskets at least once a month, citing hidden charges and frustration at inputting lengthy card details as the chief reasons for doing so.

Karl MacGregor, CEO of Vyne
Karl MacGregor, CEO of Vyne

Vyne’s CEO, Karl MacGregor, told The Fintech Times, “In the lead up to Black Friday and Christmas, the use of automated bots to bulk buy goods for resale is a growing problem, as we have recently seen with Xboxes and Playstations. Unfortunately, this trend is expanding across more of the retail sector, particularly for limited edition goods such as clothing and footwear. 

“This flaw in our current payment system is just another example of how, in our ever-more digital economy, card payments are no longer fit for purpose. Open Banking payments, on the other hand, effectively eliminate ‘bot-buying’ because all transactions must be authenticated from within the payer’s bank account.

“Another key payment trend we see leading up to these holidays is the increasing number of people who purchase and return items, knowing full well they will do so. Recent research conducted by Vyne, revealed that 38 per cent of UK shoppers make multiple purchases with the intention to later return their unwanted items. For retailers this creates a lot of overhead, and can lead to a dramatic fall in profit margins. Faster refunds are key to helping businesses survive during this period. With open banking, account-to-account repayments happen in real time, revolutionising the speed of refunds by making them instant.”

“Furthermore, instant gratification is an emerging consumer trend that is hitting retailers especially hard during the festive and sale period. The likes of Amazon‘s same day delivery has only ramped up consumers’ expectations of quick service, which also rings true for payments. 

“Consumers often abandon baskets over the festive period as checkout processes are too slow and time consuming. Open banking, however, speeds up the online checkout process, meaning shoppers can complete their transactions in as little as three clicks.”

Christmas BNPL

WorldPay’s survey revealed 70 per cent of millennials cited BNPL as a key preference when shopping in comparison to 46 per cent of boomers. Nearly a third (28 per cent) of those surveyed stated that they planned to use the payment method to make their festive purchases this year, with this rising to 43 per cent of millennials.

Garry Ottosen, Senior Vice President, Head of Lending at Oxygen
Garry Ottosen, Senior Vice President, Head of Lending at Oxygen

Commenting on the rise of BNPL this holiday season, Garry Ottosen, Senior Vice President, Head of Lending at Oxygen said, “Buy-Now-Pay-Later (BNPL) loans will likely be used more this year than in all past holiday seasons combined. But, such loans are not without risks. Consumers should very carefully consider all aspects of the loan and specifically the repayment details. Often, consumers just see the promise of something now and don’t carefully consider the fact that they will have to pay off the loan later and if the balance is not paid in full, a lump sum of interest may be added to the balance. This plus fees can make BNPL loans quite expensive. A recent survey of 1000 consumers revealed that 59 percent of consumers have at some point in the past not paid back a BNPL loan on time. BNPL loans are definitely not consumer friendly, if not paid off on time.

“BNPL loans should not be considered free money. They are not. Lenders have to make money. Consumers should dig deep enough to understand how the specific lenders make money through BNPL loans. Consumers need to be wary and carefully consider the value of other ways of financing. Many consumers can benefit more from using rewards- or cash-back credit cards. If consumers have the ability to pay for their purchase, they should consider the time-value of money that might be earned by using BNPL loans, versus the value of rewards available from credit cards.”

Black Friday – how it differed from previous years

The end of November is always marked in people’s diaries due to Black Friday. The cheap prices often seem to be good to true, which has led to stampedes in retail shops and has caused many to bolster security during this time. However, the pandemic’s online shift has caused the ‘stampede’ to take place digitally, which has brought about new priorities for companies.

Going into Black Friday this year, analysts were predicting this would be the busiest one to date. money.co.uk predicted four in ten would spend £200 – £300 more in 2021 than they did in 2020, with one in ten planning to spend £500 more. However, whilst companies and consumers alike can benefit from this time of year, vigilance must be at an all time high as the amount of scams peaks during BFCM. According to a 2019 Barclays survey, almost a quarter of 18-34 year olds have fallen victim to a Black Friday Scam in the past five years, with the average loss being £661.

But were these predictions and concerns valid? For the first time in its history, Black Friday-Cyber Monday (BFCM) sales were down, as multiple sources reported a 1.4 per cent loss, equating to millions in lost profit. research found that consumers spent £3.4billion online on Saturday, November 27th, down 4.3 per cent from 2020, and £3.5billion online the following day, down 0.5 per cent from the same period last year. Whilst sales dropped, fraudulent attacks did not: Sift found that account takeover fraud rates rose by a 2950 per cent during BFCM, on top of a 62 per cent increase in attempted payment fraud in the omnichannel retail sector.

Though there was an overall decline, that did not mean individual companies were not able to benefit from BFCM. For example, digital bank Zopa revealed customer spending on its credit cards increased by 45 per cent, month on month, over the Black Friday weekend (25th – 29th November). The figures also indicated that the Black Friday frenzy shifted earlier this year, with spending on Monday 22nd November more than double that of Cyber Monday (29th November). Mollie, the European payment provider, also released research that showed companies were able to benefit from BFCM, as small and medium-sized merchants across Europe experienced a 102 per cent increase in the overall volume of transactions on Black Friday versus the Friday prior. 

Clare Gambardella, Chief Customer Officer at Zopa
Clare Gambardella, Chief Customer Officer at Zopa

Clare Gambardella, Chief Customer Officer at Zopa said, “After the restrictions of the last two years and the disappointment of a 2020 lockdown Christmas, UK consumers want nothing more than to enjoy a fun and stress-free holiday season. But that doesn’t have to mean spending at a level which could put them in a worse position going into 2022.

“It is especially important for card providers to help customers make sense of the more technical parts of lending like interest rates and credit scores, and to explain the importance of taking a medium term, responsible approach to credit in order to improve financial health.”

Gambardella’s comments support the statistics found by Mollie. The payment provider found Buy Now Pay Later (BNPL) payment methods more than doubled from 2019 to 2020, and in 2021, it further increased by 51 per cent for online purchases. However, as noted before by ASIC, a lack of financial education on how to use lending tools could lead to detrimental debt, so customers should be cautious of spending more than they can afford. Otherwise, the joys of the festive season could be short-lived as debts stack up. 

Author

  • Francis is a junior journalist with a BA in Classical Civilization, he has a specialist interest in North and South America.

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