The IMF reports 1 on new research by the IMF, Mastercard and Harvard Business School on the impact of COVID on e-commerce. The research is based on Mastercard data across 47 countries between January 2018 and September 2021. It assesses factors driving increasing e-commerce across countries and business sectors, and to what extent the pandemic’s e-commerce surge is ‘sticking’.
Not unexpectedly, countries already using e-commerce, such as Singapore, Canada and the UK, saw online spending increase more than those starting from a lower level of e-commerce, for example Brazil and Thailand. As the pandemic receded, so were their relative decreases.
Mobility data and online payment data across the study period match each other, suggesting that differences in lockdown regulations, along with state support, were key in explaining these differences.
On average online spending, as a share of total spending, rose from 10.3% in 2019 to 14.9% at its peak but reduced to 12.2% in 2021. Overall, it is only 0.6% more than the growth trend for e-commerce if there had been no pandemic.
The story of individual countries is, of course, varied. In about half of the 47 countries, online spending is still ahead of pre-pandemic levels, including countries such as Brazil, India, Bahrain and Jamaica. Countries with no increase, or even decreases, include the US and many advanced economies.
At the aggregate level, the spike in the share claimed by online spending is dissipating. The difference between the predicted level of online spending if the pandemic had not happened and the actual level had dropped to an increase of only 0.3% by September 2021.
More people undoubtedly experienced e-commerce online spending as a result of the pandemic. The variation in the continued use of online spending today across industries is interesting. The research shows online spending on food delivery, tele-medicine and shopping for electronics, clothing and in department stores remains popular.
This continued use may be due to the speed these sectors moved online, that mobility still has not fully returned or that these were areas that were behind the curve pre-pandemic but which have now caught up.
In 2020 consumers made 15.5 billion debit card payments in the UK. Mastercard has just said that over half of the world’s in person payments are now made using contactless technology. The Payment Systems Regulator (PSR) carried out a market review of card acquiring and found that the fees charged for card payments had increased significantly, up £50 million. As a result, the PSR is looking at card operations in the UK.
The PSR November review identified a lack of transparency in fees charged to retailers and was concerned by indefinite contracts for card services, particularly contracts that appear to discourage switching providers. Cross-border interchange fees had also increased significantly.
The PSR’s concern is that fees are passed on to consumers and that there are insufficient competitive constraints on card schemes. It is not, however, looking to intervene on pricing structures directly at the moment.
The PSR has identified four areas where changes could be made:
Greater transparency. It wants ‘acquirers’ to give retailers standardised key price information which sets out key price and non-price service elements of the services.
Access to comparison tools. It wants merchants to be able to compare schemes using straightforward websites similar to price comparison websites.
Greater engagement. It wants acquirers to tell retailers when their initial contracts are due to expire and annual messages on expiry to encourage retailers to investigate switching.
The ability to change providers easily. Point-of-sale (POS) terminal leases can represent a barrier to switching. The PSR wants to look at options for merchants to switch without incurring undue cost or suffering inconvenience from having to also exchange their POS terminal. This may include the replacement of terminals by POS terminal lease providers for instance.
The PSR is running initial information requests so that it can understand where to focus. These close on 6 April. It wants the industry to put forward its own detailed proposals to address its concerns.
The PSR has a longer-term vision for account-to-account payments to become a viable alternative for retail payments, which would provide greater competition leading to lower fees for merchants and, eventually, lower consumer prices.
The European Payment Initiative (EPI) planned to build a unified pan-European payment system that would rival the Visa and Mastercard systems. The plan was backed by the European Central Bank. At the start 31 banks, along with the acquirers Worldline and Nets, joined the scheme, but today only 11 banks, Worldline and Nets remain. The reason appears to be the cost of the scheme which led, last November, to an attempt to find outside financing.
Although the initial goal was to offer consumers and merchants a payment card, digital wallet and person-to-person payments, the reduction in participants is expected to lead to a scaling back to creating a digital wallet only.
Customers of Santander complained to the UK’s financial ombudsman that it had made it all but impossible to do online banking without a mobile phone.
In 2019 Santander made changes to comply with regulations on banking fraud that required access to a mobile phone, for example receiving a text message via SMS or using a link in the mobile app to access accounts. If you did not have a mobile phone or did not have effective mobile coverage, the advice was to visit a branch or contact a call centre.
The lack of alternatives to having a mobile phone effectively denied access to online banking and customers used the UK’s age discrimination laws to seek compensation. The ombudsman supported their claims and compensation had to be paid. In 2020 Santander changed its systems to allow verification by email.
1 - Working Paper No. 2022/019. E-commerce During Covid: Stylized Facts from 47 Economies. Alberto Cavallo ; Prachi Mishra ; Antonio Spilimbergo.
