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Monetary and financial stability in the euro area




Speech by Lorenzo Bini Smaghi, Member of the Executive Board of the ECB

Before turning to my assigned topics, which concern the euro and the monetary policy of the Union, I would like to start with a few general comments.
There can be no doubt that these are challenging times for Europe. But the current crisis does not just affect Europe, it affects the whole of the West. Problems such as the sustainability of public finances and the role of the state in the economy, immigration and burgeoning income inequality, concern not only Europe and the euro area, but the whole of the industrialised world. Moreover, this is not a cyclical crisis but a structural one, resulting from the profound changes now sweeping the world. Hundreds of millions of people have risen over the survival threshold, over two-thirds of the world’s population has opted for the market economy model, and there is a perception of a lack of progress in economic and social development and also in civil rights in a large part of the world.

There is probably no historical precedent for the speed at which these changes are taking place. But this is not to say that history is not instructive and no useful lessons can be drawn from it. To understand how to face the challenges ahead of us, it may be useful to understand how similar challenges were faced and overcome in the past, and particularly how some were able to make progress while others lost ground at times when the pace of globalisation accelerated.

Much has been written recently on this subject. Niall Ferguson and Ian Morris, for instance, examine the reasons why the West has “ruled” the world – at least until now. [1] In essence, they assert that civilizations developed and rose to dominance when they were open to innovations from abroad and were able to develop and use them to their advantage. This applies to both migratory flows and imports of agricultural or manufactured goods, ideas and scientific innovations, in a context of competition. Those who were closed to globalisation declined, even if they had achieved a leading position in economic, technological or military matters.

That is the reason why, according to Jared Diamond, a European, rather than a Chinese explorer, discovered America at the end of the fifteenth century, even though China’s economic development was much more advanced and had a much greater army and navy. [2] I would like to quote briefly Diamond:
“Christopher Columbus, an Italian by birth, switched his allegiance to the duke of Anjou in France, then to the king of Portugal. When the latter refused his request for ships in which to explore westward, Columbus turned to the duke of Medina-Sedonia, who also refused, then to the count of Medina-Celi, who did likewise, and finally to the king and queen of Spain, who denied Columbus’ first request but eventually granted his renewed appeal. Had Europe been united under one of the first three rules, its colonisation of the Americas might have been stillborn.”

The spirit of competition and the decentralised decision-making mechanism that characterised Europe in past centuries explain, for example, why European navigators strove to discover new routes; how the foundations of commercial dominance were laid; and how scientific discoveries, which often originated abroad, were turned into innovations and new production processes. Again, using Diamond’s words:

“Once Spain had launched the European colonisation of America, other European states saw the wealth flowing to Spain, and six more joined in colonizing America. The story was the same with Europe’s cannon, electric lighting, printing, small firearms, and innumerable other innovations: each was first neglected or opposed in some parts of Europe for idiosyncratic reasons, but once adopted in one area, it eventually spread to the rest of Europe.”

Europe rose to dominance over the centuries to the extent that the positive effects of competition prevailed over the negative effects associated with the recurrent conflicts between states that stemmed from the inability to resolve the tensions generated by competition. The European Union was created precisely in order to ensure that the spirit of emulation and competition could operate within a framework of peace.

There is no doubt that there are currently substantial differences within Europe, with some countries demonstrating a strong capacity to adapt to the new global conditions, while others are finding it hard to implement the changes that are necessary to maintain their level of prosperity and continue to grow. These differences are not confined to Europe. Contrary to what some observers say, I think that the anti-Europe movements that have emerged in some countries are a symptom of a more general dissatisfaction linked to the structural factors of the crisis. In the United States too, society is deeply divided on how to face the challenges of globalisation.

Although European institutions provide an easy scapegoat, they represent an element of extraordinary strength in the current circumstances, not only for Europe, but also for the Member States, giving them – I believe – a great advantage. In a severe crisis, which requires prompt action with long-lasting effects on the lives of citizens, the risk of a mistake is enormous, particularly if decisions are taken in a monolithic society or there is a tendency to share a common mindset. The existence of European institutions does not eliminate the possibility of error, but forces together the different cultures and opinions that form the Union in the decision-making process. As a result, decisions may be wiser, even if taken in a cumbersome way and in a context of deep discord. One example is the decisions to support the three countries which experienced economic difficulties. Opinions differed within the Union. Some were tempted to leave the countries to their fate, to pay for the mistakes they had made. But others were prepared to help – even unconditionally – thinking that in future they might benefit from the same assistance if needed. In each case it was difficult to forge an agreement, but finally a balanced solution was found with a view to creating the appropriate incentives for adjustment.

Resorting to European institutions does not mean that all decisions need to be centralised at the Union level. Maintaining decentralised decision-making and some form of competition in some sectors can be an important factor in encouraging less competitive countries to emulate more efficient ones. In several European countries, for instance, the reform of the labour market to align it with best practice has become a priority in the adjustment process.
Overall, I believe that Europe has the ability to meet the challenges that the western world faces, if it is able to make full use of its own experience and institutions. Changes are nevertheless needed. And this brings me to the questions specific to Economic and Monetary Union.

In this regard, I would like to make two main points: first, the global economy is becoming increasingly “multipolar” and the euro will have to stand its ground alongside at least three – and possibly more – other major international currencies. Second, the euro can only be assured of a major role in a multipolar currency world if the architecture underlying the single European currency is sufficiently strong. The task of achieving this cannot be delegated to financial markets and requires appropriate institutional steps.

The euro in a multipolar world

When the idea of the single currency was first mooted in the 1980s, the global economy was dominated by three countries: the United States, Germany and Japan. Since then, the global economy has seen major changes. With the ongoing integration of global markets, we have witnessed the rise of emerging market economies. China, in particular, has led to a progressive shift in the centre of economic gravity and is expected to overtake the United States in terms of GDP at market exchange rates sometime from 2025 onwards.

The US dollar has remained the main international currency, as a result of the predominance of US financial markets and also the inability of several emerging economies to pursue independent policies (for example by de-pegging their currencies from the US dollar). But there is little reason to believe that these factors will not change over time. The renminbi, in particular, should be in a position to relatively quickly emancipate itself from the dollar and become a major international currency if the Chinese authorities were to consistently pursue capital account liberalisation, greater exchange rate flexibility and all related policy measures in the years to come. The international role of some other emerging market currencies is also likely to increase over time.

We are clearly moving towards a multipolar currency world. The question is whether the euro will be one of the poles – so to speak – of the new system. I will not dwell on the advantages for Europe of being one of the poles, but rather I invite you to reflect upon what would happen if it were not. To be sure, the euro, like any other currency, would be affected by economic and political developments in the countries issuing the leading reserve currencies, and would suffer severely from external shocks. Consider, as an illustration, the recent experience of the Swiss franc, a currency which is renowned for its stability. After the onset of the global financial and economic crisis the franc appreciated by 17% vis-à-vis the euro in 2010 alone, driven by the reallocation of global capital on a massive scale. This has fuelled deflationary risks and slowed economic growth. To counter these effects, massive unilateral interventions were conducted, leading de facto to a closer alignment of monetary conditions with those in the euro area.

This points to the conclusion that in a multipolar world having appropriate domestic macroeconomic policies is not sufficient to absorb external shocks. Unless a country or an economic region also has a deep and liquid capital market and its size is sufficient to absorb large capital flows, it is bound to become subordinate to the existing poles, or to be squeezed between them. The prosperity of the euro area countries is inextricably linked to the success of the euro.

The euro: a unique construct

The euro is the only major currency that is not issued by a single sovereign state, but by a union of states. As this is a totally unprecedented monetary framework, it is fair to ask whether it has what is needed to become one of the poles of the new system – in other words, is it sufficiently robust to ensure sound economic policies at the euro area level and in the individual countries, and does it have a large and deep financial market?

Decisions are about to be taken on strengthening the governance of the euro area with a view to achieving these objectives. The aim is not only to strengthen the institutional architecture but also to advance the implementation of the single market. The ECB’s position in this respect is well-known.

Here today I would like to warn against an illusion which seems to be spreading among policy-makers in Europe. The illusion is that the economic governance of the euro area can be strengthened not by increasing the responsibilities of policy-makers, which would mean stronger European institutions and stronger rules, but rather by delegating to financial markets the task of selecting the appropriate policies that authorities must abide by, in particular with respect to budgetary policies.

One avenue that has been advocated by some is to make more explicit the conditions under which countries, like companies, would not repay their obligations and would restructure their debts or even default. The proponents argue that such explicit rules would improve the ability of markets to price sovereign risk and, thus, to exert discipline on governments with a view to achieving sounder fiscal policies. This view is predicated on the general principle that investors should bear the consequences of their decisions.

Although at first sight this may seem reasonable and fair, it is wrong not only in theory but also in practice. The reasons are simple and include the following:
First, as over 50 years of IMF experience have proven, market assessments of the solvency of countries tend to be wrong. In the vast majority of cases, sovereign risk is overestimated or underestimated over a long period. This is because sovereign risk does not depend only on debt sustainability, but also on the political will to implement adjustment programmes, including privatisations and structural reforms.

Second, at times markets have perverse incentives. In particular, large investors who have bought insurance against sovereign default, often without holding the underlying asset, stand to benefit greatly from the default and lobby in favour of it. They tend to encourage naïve governments to believe that debt restructuring can be done in an “orderly way”, distracting them from implementing the appropriate policy adjustment.

Third, default or debt restructuring is a dramatic economic and social event for the country which experiences it – I would call it political “suicide” – which leads many into poverty, as experience has shown. It is thus rather peculiar for policy-makers to design policies mainly with the aim of punishing (or rewarding) certain categories of investors, rather than considering the ultimate consequences for the people.

Finally, if the euro area were to go down the path of leaving it entirely up to the markets to decide which countries are solvent and which are not, it would put the euro at a disadvantage compared with all other major currencies. This is confirmed by the fact that since mid-October 2010, when the idea of private sector involvement in programmes to assist countries experiencing difficulties was voiced at the highest political level, and in spite of subsequent clarification that in fact no change had occurred in prevailing practices, some euro area market segments have severely suffered. The benefits of a deep and liquid financial market where international investors feel safe to invest have been jeopardised, undermining the competitiveness of the euro.

The alternative is for policy-makers to take responsibility and strengthen the economic governance framework of the euro area, in at least three ways.
First, the governance framework underlying budgetary policy requires bold changes, with greater automaticity and stronger commitment on the part of policy-makers to ensure full compliance with the Stability and Growth Pact. [3]

Second, further progress should be achieved in the implementation of the single market, strengthening the “economic leg” of EMU.
Finally, we need to further integrate regulatory and supervisory institutions for the financial sector at the European level, either by reinforcing efforts to harmonise practices across Member States, or by further strengthening European authorities.

A great deal has been achieved over the past few months, but much remains to be done to put the Union in a position to meet the challenges which have emerged as a result of the crisis.


Let me conclude by quoting David Marquand’s recent book, “The end of the West”: [4]
“The economic crisis itself, like its predecessor in the 1930s, is political, not technical. The world’s economic blocs will have to find painful answers to urgent problems; and the allocation of the pain will be a supremely high-political matter. It will raise profound questions of distributive justice, of the obligations that the present generation owes to future ones, of the proper balance between the claims of poor and rich nations, and of the proper relationship between the human and other species. Such questions…are quintessentially global in character, and the answers will have to be global too. But for the Union’s leaders to opt out of the global search for answers would be a betrayal of their citizens. And they will be unable to opt in if they cannot speak with one voice and lack the democratic legitimacy to carry their people with them.”
Lastly, I would like to praise the organisers of this Festival of Europe Conference for having chosen Florence as the place to debate such important issues related to the future of our continent, as I like to think that one of the best way to symbolize Europe is the David (by Michelangelo): young, vigorous but also gentle, his gaze fixed fearlessly on the challenge; he can triumph, against all odds. That’s the way Europeans should be.
Thank you for your attention.

[1]Niall Ferguson, “ Civilisation: The West and the Rest”, Allen Lane, 2011; Ian Morris, “ Why the West Rules – for Now”, Farrar, 2010.
[2]Jared Diamond, “ Guns, Germs and Steel”, Norton, 1997.
[3]The ECB published a long article on its views in this regard in the March 2011 issue of the Monthly Bulletin.
[4]David Marquand, “ The End of the West – The Once and Future Europe”, Princeton University Press, 2011.

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Dollar pauses its decline on fresh virus worries



Dollar pauses its decline on fresh virus worries 1

By Hideyuki Sano

TOKYO (Reuters) – The U.S. dollar stabilised on Monday after a recent decline as fresh worries about the coronavirus and the global economy prompted investors to hang on to the safe-haven currency.

But analysts said the dollar could resume its fall if the U.S. Federal Reserve reaffirms its commitment to a highly accommodative monetary policy at its rate meeting later this week — as widely expected.

“I don’t think the Fed has any incentives to curtail its stimulus at this point, even though some market players may try to read between the lines for any signs of tapering in stimulus,” said Kazushige Kaida, head of FX sales at State Street Bank’s Tokyo Branch.

“I think the dollar is staying in a downtrend even though it is marking time for now,” he said.

Federal Reserve Chair Jerome Powell is expected to signal he has no plan to wind back the Fed’s massive stimulus any time soon when the central bank concludes its policy review on Wednesday.

The dollar index stood at 90.172, flat on the day. It bounced back on Friday after hitting 90.043 on Thursday, last week’s lowest level.

Economic activity in the euro zone shrank markedly in January as stringent lockdowns to contain the COVID-19 pandemic hit the bloc’s dominant service industry hard while UK data showed British retailers struggled to recover in December.

British Prime Minister Boris Johnson also said on Friday there was evidence a new variant of COVID-19 discovered late last year could be associated with higher mortality, while problems in some vaccine roll-outs also weighed on sentiment.

Downbeat coronavirus news overshadowed some upbeat U.S. data, including a surge in manufacturing and an unexpected jump in existing home sales.

Bets against the dollar have become overcrowded, analysts also said, with U.S. data on Friday showing net dollar short positions swelling to the largest since May 2011.

The euro was little changed at $1.2174 , taking a pause after a 0.8% gain last week.

The common currency is capped in part by signs of political instability in Rome, which has also driven Italian bond yields higher. The yield spread between Italian and German bonds hit its highest since November on Friday.

Italy’s main ruling parties on Friday flagged snap elections as the only way out of its political impasse, if Prime Minister Giuseppe Conte fails to drum up a parliamentary majority after scraping through a confidence vote.

The situation in Italy demonstrates the widespread risks of political instability from popular discontent as communities grow weary of the pandemic, some analysts said.

“The stock markets’ rally during this pandemic is completely dependent on fiscal expansion and debt monetisation by central banks,” said Makoto Noji, chief currency strategist at SMBC Nikko Securities. “Political instability could delay fiscal measures. The year 2021 will not be the same as 2020.”

In Washington, the honeymoon after Joe Biden’s inauguration as President last week means investors are hopeful that at least a part of his $1.9 trillion coronavirus relief plan will come through fairly soon.

The second impeachment trial of former U.S. President Donald Trump expected early next month could complicate his efforts.

Elsewhere, the British pound held firm at $1.3684, not far off a 2-1/2-year high of $1.3745 touched on Thursday thanks in part to Britain’s lead in COVID-19 vaccinations.

Against the yen, the dollar was flat at 103.76 yen.

(Reporting by Hideyuki Sano; Editing by Sam Holmes and Ana Nicolaci da Costa)

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Top 8 Tax Scams to Watch Out For



Top 8 Tax Scams to Watch Out For 2

It is tax time and that means finding the best way to file your taxes and to get a refund of any amount you’ve overpaid. Unfortunately, tax time also means plenty of scammers are thinking of new and clever ways to try and get their hands on your money or on your personal information (which they can use to get money).

Those who specialize in IRS tax scams are clever and can be very convincing. Your first line of defense is to always know what to be looking for in terms of common tax fraud in order to avoid being another victim.

8 Most Common Tax Scams

Protecting yourself from IRS tax scams can be tricky if you’re not aware of what the threats are. A good tax scam seems legitimate, and that is what makes them dangerous. Always be on the lookout for the eight most common tax scams, including:

  • IRS Phone Scams
  • Fake IRS Emails
  • Fraudulent Tax Preparers
  • Fraudulent Tax Refunds
  • Fake Charities
  • Set Up Offshore Accounts
  • Empty Promises
  • Frivolous Returns

To know what exactly you need to watch out for, let’s look at them in more detail.

1. IRS Phone Scams

If someone calls you claiming to be from the IRS, it is almost certainly one of many IRS phone scams. The IRS will never call you to demand money for back taxes or to confirm your personal information, so be immediately alert. Never give personal information over the phone, and don’t head to the bank to follow the demands for money.

If you do wind up on the end of an IRS phone scam, don’t become flustered by aggressive tactics by the fake “agent”. They are good at sounding threatening and demanding information or payments. Remain calm and ask for contact information. Tell the scammer you’ll call them back with the information. Either the scammer will give you fake information or he will work to avoid leaving any information at all. Regardless, don’t call him back. Simply report the call to the local police or the IRS.

2. Fake IRS Emails

Another very common fake IRS scam is phishing, or sending fake IRS emails, in a ploy to gather personal information. Fake emails will look authentic and will ask you to click on a link or to log in to a fake IRS website. The purpose of these emails is to simply gather your personal information to be used for other fraudulent purposes.

Just like with IRS phone scams, you should be immediately wary if the IRS appears to send you an email. The IRS does not contact citizens through email. All official IRS communication will come through standard mail. If you do find a fake IRS email in your inbox, forward it to the IRS. The IRS investigates these scams and has a dedicated email address for this very purpose: [email protected].

3. Fraudulent Tax Preparers

Some scam artists show up in a suit, open a storefront and offer to prepare your tax return for you. These tax preparers appear by all accounts to be absolutely legitimate, and many go to great lengths to convince customers of their years of experience and authenticity.

As a fraudulent tax preparer, however, the person is not legitimate. The scam artist can use your tax return in many ways for his own benefit. He can inflate your refund and skim off the top. He can charge outrageous fees for filing on your behalf. He can file your return correctly this year and gather all of your information to make a fake return for his benefit next year.

If you are going to have someone else prepare your taxes, be sure to look carefully through tax service reviews. Tax service reviews are available on many different websites that offer feedback on companies and services. These reviews will give you a very good idea about the legitimacy of the business and the reliability of the preparer. If a company doesn’t have any tax service reviews on any website, like e.g, or BBB, that may be a sign that it’s a pop-up company that will disappear as soon as the scammer has what he wants.

4. Fraudulent Tax Refunds

Another very popular tax scam starts well before the tax season. To file a fraudulent tax return, the scammer must gather all pertinent personal information including a social security number. He then uses the information he gathered to file a fake tax return on your behalf. Naturally, he’s not going to send you the refund he’s claiming – that goes into the scammer’s pocket.

The best way to prevent a fake tax return is to guard your personal information close at all times. If nobody is able to steal your identity, they can’t file a tax return. Another good step is to file your own tax return as early as possible. That way, even if your information was stolen somehow, you will get your refund correctly and the IRS will be alerted when someone files a second return using your information.

5. Fake Charities

Charitable donations are tax-deductible if you’re itemizing your deductions. This creates possibilities for scammers to take advantage of others who are looking to reduce their tax burden and increase their refund by making donations. Fake charities can take on many shapes and forms.

Some may appear conveniently around tax time or be affiliated with fraudulent tax preparers. The claim is that by donating to a fake charity you will help others and reduce your own tax liability. Instead, you’re giving someone free money and you won’t be able to deduct the donation as it’s not a real charitable organization. Other fake charities involve you in a scam by promising to give you back your donation as soon as the tax return is filed, for example. It goes without saying that claiming a donation you didn’t actually make is tax fraud and highly illegal.

At the advice of his tax preparers, a famous country singer Willie Nelson moved some of his money into tax shelters and charities to help reduce his tax bill. The IRS grew suspicious of the moves and investigated. In one of the most famous IRS cases in the United States, Willie Nelson was hit with a tax bill in the millions when his charities and shelters were found to be invalid.

Willie didn’t have the funds to make the payments, so the bill continued to grow until the IRS finally grew so frustrated they raided and seized all of Willie Nelson’s properties including a recording studio, a ranch, and his home. Even that wasn’t enough to pay the bill, so eventually, Willie made a deal with the IRS. He recorded an album and all proceeds from that album went directly to the IRS to whittle away his debt. Willie did file suit against the accounting firm that advised the tax shelters in the first place, but the two parties settled out of court.

6. Set Up Offshore Accounts

Some tax scams sound good but require your participation in illegal activities. For example, you may meet an unscrupulous tax “professional” who offers to help you move some of your money into an offshore account.

This sounds legitimate as many people use offshore accounts for valid reasons, but by moving your funds into an offshore account with the intent of hiding that income from the IRS, you’re committing tax fraud. Additionally, if you’re working with a shady professional, it’s highly likely that neither you nor the IRS will see your extra income ever again. And you can still wind up with a legal case with your money stolen and gone.

7. Empty Promises

The tax preparer who encourages you to sign a blank tax form is nobody you want to work with. These preparers encourage you to simply sign the form because he or she is going to work out the numbers for you so that you can get the highest possible refund. If you do this, you are almost certainly subjecting yourself to tax filing scams.

Signing a blank tax form is potentially worse than simply signing a blank check for a stranger. Not only are you at risk of losing your personal information and any refund you might be owed, but you are also at risk of legal action by the IRS for signing your name on a refund that is almost certainly going to contain false and fraudulent information.

8. Frivolous Returns

The IRS sees a ridiculous number of what they call “frivolous returns” every year. A frivolous return is a tax return that is filed with the intent of simply wasting time. These frivolous claims have already been thrown out in court, so filing a tax refund making a frivolous claim is simply opening yourself up to additional action by the IRS including fines of at least $5,000. The top “frivolous claims” include:

  • Refusing to pay taxes on moral or religious grounds
  • “Opting out” of paying taxes
  • Invoking the First Amendment to “protect” you from taxes
  • Claiming only Federal Employees pay federal taxes
  • Claiming you have no income and therefore no tax liability (when you clearly do)

Top 3 Tips on How to Protect Yourself from IRS Tax Scams

Protecting yourself from tax fraud is a matter of being vigilant and mindful that there is always a possibility of something going wrong. Work with a trusted advisor or study up and file taxes yourself to avoid the uncertainty of allowing others to handle your financial matters. Often a bit of knowledge goes a very long way.

1. Know How the Tax System Works

One of the most common negative IRS reviews is that the tax refunds aren’t released immediately. In many IRS complaints, customers complain that they don’t get their refunds immediately.

While frustrating to wait, the IRS is usually very clear about processing times and has never sent refunds immediately after the filing window opens. The government doesn’t move quickly and reviews of documents and financial information submitted in your returns are necessary.

Additionally, relying on others to help you file your taxes every year can open you up to the possibility of fraudulent activities. Reviewing the tax codes and reading through the laws and requirements may not be exciting, but it will give you at least a basic understanding of how the process works so that you can look out for problems if you are trusting someone else with your information and money.

2. Always Read Carefully

The safest way to file your taxes is to do them by hand on the original IRS paper forms and to mail them using certified mail. Many people don’t choose to do this, however, as it can be very tedious and confusing if you do not know the tax system backward and forwards.

Instead, many filers rely on tax software and paid tax preparers. When using software or allowing someone to use the software on your behalf, it never gets too comfortable. There might be hidden fees in the software or glitches to overcome.

Reviewing choices carefully as the software takes you from screen to screen is a good way to avoid accidentally accepting hidden fees. Another option to avoid paying for fees you aren’t comfortable with is to simply abandon the return on one piece of online software and to try again with another – there are multiple tax return software options available.

3. Always Look for Tax Filing Scams

If you always expect to find a scam, you’ll never be surprised when one appears. Even tax preparers who have been in business for years can have some deceptive business practices that others assume are necessary or haven’t noticed them at all.

Tax time can be exciting if you’re entitled to a large refund, but it can be stressful if you don’t feel in control of the tax filing process. Educate yourself on the risks and tax scams that exist, and always exercise caution when choosing a method to file your taxes. Your personal information is closely tied to your money, so protecting both of them is often simply a measure of keeping your eyes wide open and using your knowledge to avoid traps and scams.

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These 5 Payments Trends Once Seemed Revolutionary. In 2021, They’ll Continue to Become the Norm



Real-time payments – mitigating the security risks to capitalise on the opportunities

By Warren Hayashi, President, Asia-Pacific, Adyen.

The pandemic forced brands to transform their businesses in ways that are here to stay

After a year of such great uncertainty, attempting to predict the future may seem risky. But even as brands and retailers faced unprecedented upheaval in 2020, one constant has held true. The pandemic has accelerated trends toward digitisation—and that’s as true in payments as in so many other areas of business and society. The stark reality of needing to avoid close contact with others has driven transformations for retailers and brands in a matter of months that in the past might have taken years. In the process, behaviours and expectations have changed for good.

As 2021 begins, much uncertainty remains but we feel confident that the digital transformation of payments will only get faster. Even after the pandemic has receded and consumers have the option to go back to their old behaviours, many won’t. The rapid increase in e-commerce seen under COVID-19 will persist, especially among previously digital-hesitant consumers. Merchants can no longer assume that their digital customers are limited to younger, tech-savvy shoppers. As brands have shown flexibility during the pandemic, consumers have also come to expect the flexible arrangements to continue. On that note, these are the key trends in payments that should be top-of-mind for brands and retailers in Singapore and Asia Pacific in 2021:

  1. Contactless will extend its reach into every corner of retail

From the start, the pandemic forced merchants to find ways to minimize the amount of physical contact necessary to complete a transaction. Customers and workers alike sought to avoid handing over credit and debit cards, touching keypads, and handling cash. According to our 2020 Agility Report 58% of APAC respondents preferred to use contactless payment methods because of hygiene concerns.

Our data also showed that the use of services such as Apple Pay and Google Pay has significantly increased over the last year too. Research from Kantar reiterates this, revealing that the frequency of e-Wallets transactions in Southeast Asia rose from an average of 18% pre-COVID-19 to 25% post-COVID-19[1], indicating a shift from one payment method to another.

In the post-pandemic world, the transition to contactless will only become more widespread now that the bar has been raised among consumers for what checking out can be, from one-click payments to same-day delivery options. Not to mention, the value of QR codes has also been made apparent in anchoring a seamless experience, not just at point-of-sale but at multiple points along the customer journey too, such as viewing menus and placing orders. The pandemic may have driven the change in behavior, but the superior user experience will cement contactless as the new normal.

  1. The distinction between offline and online will fade into irrelevance

As countries went into different forms of lockdown, many shoppers were unable to enter brick-and-mortar stores throughout 2020. Unifying offline and online became an issue of survival for retailers, who quickly pivoted to make app-powered deliveries and self-pick up options a reality.

Even while most physical stores in Singapore have opened their doors to consumers again, the digital infrastructure will remain in place. Many shoppers continue to prefer the convenience of deliveries and expect the options to continue, and retailers will find they’re able to forge better customer relationships thanks to the rich data generated by digital transactions.

One of the biggest learnings for the industry is the need to rethink the traditional split between offline and online stores. With lines increasingly blurred, retailers will benefit from adopting a unified commerce approach where brand interactions on and across all channels are important.

  1. The membership model will reign in retail and also in food and beverage

The membership model is another emerging trend for 2021. Amazon Prime is a great example of this, where customers pay an annual fee that in effect encourages them to buy more from Amazon in an effort to ensure they’re getting their money’s worth from their Prime memberships. Quick-serve restaurants especially are seeking to seize some of that flywheel effect. In addition to improved incremental spend, membership programs enable QSRs to get to know their customers in ways that were never possible when they were just anonymous faces standing in line.

Meanwhile, subscription passes encourage loyalty and more frequent use. Our 2020 Agility Report found that 38% of Singapore respondents (compared to 27% in APAC and 22% in Europe) signaled their interest in using these for products, including food passes, to reduce the amount of times they need to shop. Expect to see more retailers offering memberships in 2021 as brands seek to own the customer relationship and the data that goes along with it.

  1. Installments will become an everyday way to pay

The twin forces of increased convenience and tightened household budgets have brought pay-by-installment options mainstream, a trend that will only grow in 2021. Machine learning algorithms have become more adept than ever at assessing risk instantaneously, making it easy to offer “buy now, pay later” options right at checkout. For small and mid-ticket items, shoppers know that, say, instead of paying $100 now, they’ll pay $25 per month for four months. That kind of transparency makes it easier for shoppers on the fence to commit, which appeals to merchants hoping to avoid the dreaded abandoned shopping cart.

In 2021, providers of “buy now, pay later” options themselves will start to diverge, as some focus on higher-end, multi-year agreements, while others seek to offer installment plans for shopping baskets as small as $50. For households increasingly accustomed to paying by the month for everything from streaming services to food delivery premium memberships, installment plans start to look like subscriptions that just happen to have a fixed end date.

  1. The checkout-less experience will draw shoppers back to brick-and-mortar

In 2020, the appeal of an in-store experience offering limited human contact took on a new dimension, accelerating interest in doing away with the checkout counter altogether. For instance, in Singapore, BHG is looking to expand its endless aisle offering. By using interactive screens in-store, customers are able to check on inventories across all of BHG’s stores and e-commerce platform and can opt to have items to be delivered directly to their homes.  Post-pandemic, shoppers will still find appeal in the human touch. The physical store continues to be relevant, especially in Asia Pacific and eliminating checkout counters frees staff to interact with shoppers in a more personal way, while also making lines a thing of the past.

In 2021, more stores will find various ways to make checkout a less prominent part of how people shop in-store. Multiple providers are creating their own versions of checkout-less experiences, where instead of going to the counter, customers will scan their items with their phones’ cameras, pay via app, and head out the door—a combination of increased trust and decreased friction that helps cultivate customer loyalty. In the case of Love, Bonito in Singapore, if customers are unable to find a particular item in store, they can go to an iPad within the premises, buy it online and have it shipped to their homes.

Across the five trends, this paradigm shift in the retail sector is underpinned by the under-tapped potential of technology to elevate the customer experience. Looking ahead in the new year, we expect retailers to increasingly harness digital solutions. Not only does this streamline operations, it also gives retailers the flexibility to pivot in line with changing preferences, and provide a seamless consumer journey across multiple channels.

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