How to spend it - post COVID

E-commerce

Whilst COVID-19 has had a broadly detrimental effect on the global economy, one of the hardest hit sectors is retail. As bricks and mortar shops and retail businesses closed following government-mandated lockdowns, consumers turned to the web to make their purchases. In Great Britain, the proportion of retail spending online soared in May 2020 to the highest proportion on record at 33.4% (compared to only 19.6% in February 2020).¹

While the sharp increase in e-commerce expenditure is circumstantial, we anticipate that there will be a permanent shift in consumer behaviour towards online shopping, particularly as online retailers increase their capacity and infrastructure to meet unprecedented demand as a result of the pandemic. Even before the pandemic, global revenues in the e-commerce market were projected to reach US$2,275,953m in 2020, with the expected number of users rising to 60.3% of the market.²

Big online marketplaces – such as Amazon, eBay and Alibaba – will emerge as some of the proverbial winners of the crisis in the long-run. Amazon’s share price had increased by 23.7% in May 2020 compared to December 2019³ as it hired 175,000 additional workers in April and May .⁴ Similarly, in May 2020 eBay’s share price rose by nearly 15%⁵ while Alibaba reported increases of 21% in quarterly revenue and 19% in core commerce sales.

These COVID-19 windfalls will allow online retailers to further invest in their services and infrastructure to enhance user experience. We anticipate greater use of data and machine learning to offer targeted products and services to consumers (eg via sophisticated, human-like chatbots; individualised search and display results; real-time price optimisation based on competitors’ prices, demand, time of day, and type of customer; and supply and demand forecasting). We will see greater use of augmented reality to allow customers to “try” products before purchase – examples include the ASOS virtual catwalk, Gucci’s AR shoe try-on app, and IKEA place which allows users to “place” Ikea furniture into their own home using its VR app.

Payments and Crypto Currencies

COVID-19 will have a lasting impact not only on where consumers spend their money, but how they spend it. The use of cash was already declining pre-COVID-19 (in 2017 debit cards overtook cash as the most frequently used payment method in the UK⁶); increased reliance on online shopping, driven by social distancing, focus on hygiene, and innovative payment solutions, will further accelerate this trend.

We have already seen the short-term impact on digital payments. In response to the pandemic, banks in the UK, Belgium, the Netherlands, Ireland, Poland, Norway and Hungary raised the limits for contactless payments without a PIN entry –in the UK, for example, the limit increased from £30 to £45. In the medium to long-term, we expect cashless payments (whether via contactless cards or other devices) to increase in dominance, albeit that many jurisdictions are still some way away from becoming “cashless societies” (the US, Germany and some parts of Asia, for instance, are still very much reliant on cash payments).

Similarly, the financial services sector has shifted towards a contactless, apps and online-platform based service model in the past ten years, with “challenger banks” delivering services entirely digitally, and established banks ramping up investment in their mobile app, online banking and digital payment capabilities. We will continue to see increased use of FinTech apps and banking-as-a-service platforms as face-to-face reception of services declines and physical bank branch closures, perhaps, accelerate. Indeed, the outbreak of the pandemic has seen a 72% surge in the use of FinTech apps in Europe in March.⁷

The cryptocurrency market is similarly experiencing growth in the midst of the pandemic The value of the global cryptocurrency market is predicted to reach US$1,758.0m by 2027⁸ and eToro, the social trading and multi-asset brokerage company specialising in cryptocurrencies, reported 77% growth in new users in June 2020.⁹ Trading in cryptocurrencies will become more mainstream as homebound traders look to invest their money in growing assets. Positive comparisons between Bitcoin and gold, with their limited supply, inflation immunity, and decentralization, will come to the fore. Some predict that the value of Bitcoin will surge to an all-time high of US$20,000 in the coming year.¹⁰

Central banks are also starting to explore the issuance of their own, blockchain-enabled digital currencies, or Central Bank Digital Currencies (CBDC). In March of this year the Bank of England published a discussion paper on the CBDC, noting that it “intends to engage widely with stakeholders on the benefits, risks and practicalities” of introducing CBDC. Some central banks are at more advanced stages; notably, the People’s Bank of China is running trials of its own digital yuan. The advent of a yuan CBDC may be transformative, in particular with respect to the US/China relationship and the ability for others to use the yuan as a global reserve currency in favour of the US dollar. Following the pandemic we anticipate that the interest in, and adoption of, CBDC by central banks will be accelerated by the increased reliance on technology and a desire to maintain dominance and control in the issuance of currencies.

¹https://www.ons.gov.uk/businessindustryandtrade/retailindustry/bulletins/retailsales/may2020
²https://www.statista.com/outlook/243/100/ecommerce/worldwide
³http://www.circleid.com/posts/20200504-amazon-will-thrive-after-covid-19/
⁴https://www.cityam.com/covid-19-why-the-tech-giants-have-emerged-as-winners/
⁵https://www.marketwatch.com/story/ebay-shares-rally-over-the-past-month-but-analysts-question-whether-covid-19-related-growth-can-last-2020-06-08
⁶https://www.bankofengland.co.uk/knowledgebank/will-cash-die-out
⁷https://www.marketwatch.com/story/coronavirus-lockdowns-and-social-distancing-fuel-surge-in-use-of-fintech-apps-2020-03-30
⁸https://www.globenewswire.com/news-release/2020/05/26/2038787/0/en/Cryptocurrency-Market-to-Reach-USD-1-758-0-Million-by-2027-Modifications-in-Virtual-Currency-Methods-to-Spur-Business-Opportunities-states-Fortune-Business-Insights.html
⁹https://invezz.com/news/2020/06/24/bitcoin-after-coronavirus-pandemic-passes/
¹⁰https://dailyhodl.com/2020/03/25/pantera-capital-ceo-says-bitcoin-btc-may-hit-all-time-high-in-12-months-hedge-fund-positioning-for-cryptocurrency-market-surge/