By Lorenzo Pellegrino, CEO of Skrill, NETELLER and Income Access at Paysafe

COVID-19 is having a significant impact on the way consumers are making payments, both in-person and online. But the shift to eCommerce is one of the greatest consequences we have seen to date; when we asked consumers about their spending habits during the early stages of the pandemic 42% told us they were shopping online more frequently and 18% told us that they had shopped online for the first time since the start of the outbreak.

COVID-19 is hitting disposable income

But the impact of COVID-19 on consumer spending goes beyond moving from the high street to online. One of the most significant factors impacting how and when consumers are spending is economic; unemployment, lack of available freelance work, reduced wages, and reduced hours are all consequences of the pandemic that have already disturbed people’s lives, and may be felt even further as we head into 2021 and a potential second wave.

With less disposable income, many consumers will be forced to spend less. But sometimes this is easier said than done, and so managing finances more efficiently is often key to doing so. One way that consumers might attempt to do this is to switch their preferred online payment method in order to maintain better control and visibility over their spending.

Consumers are already paying in a new way

In September we surveyed 1,100 online businesses in the UK, US, Canada, Italy, Bulgaria, Germany, and Austria on the impact COVID-19 is having on them, and they told us tat consumers had already begun to pay differently via their online checkout.

Three quarters of businesses told us consumers had switched their preferred payment method. Of these new trends, an increased use of digital wallets was the most identified change; 40% of businesses said that they had seen a greater percentage of consumers make payments this way. Other alternative payments methods, such as eCash (identified by 26% of businesses) are also now more popular.

We also asked businesses why they thought consumers were paying using different methods. Wanting a more secure payment method due to fraud concerns is the reason identified by the greatest percentage (40%) of businesses. The economic consequences of COVID-19 may be a reason this has become more important, as consumers could be increasingly worried about financially coping if they were unable to recover the funds.

Over a third of businesses (37%) of businesses were more direct; they told us that consumers are changing their preferred payment method online because they want to track their spending more accurately.

This trend is not something new. The rise of digital banks in recent years has disrupted financial services, and one of the main advantages of these challenger banks is the ability to maintain a better view of how and when you are spending money. But like many other trends, COVID-19 has been an accelerant of an already identified shift.

How alternative payments can make a difference

Limiting spending by moving away from bank cards and especially credit cards is one way alternative payments enable consumers to keep better track of their spending. Itemising purchases more clearly as per a digital wallet is another. Prepaid methods (i.e. a loadable source of funds where the amount credited cannot be exceeded) that prevent you from overspending or budgeting via a digital wallet is a third.

For example a consumer might budget £100 a month of disposable income to spend on clothes; as the consumer only uses the prepaid method to buy clothes and only tops up £100 per month on the prepaid card each month they won’t exceed the limit they set themselves.

Another example of this would be using an eCash product as a form of spending control between parents and children. We have all heard stories of parents giving their child access to their credit cards details through games that offer app-based purchases, and the child running up huge bills. By uploading a fixed amount to a prepaid payment methods such as eCash, or giving the child cash that they can upload to a prepaid card themselves, parents can be assured that the child won’t intentionally or accidentally overspend when gaming.

What happens next?

COVID-19 will continue to affect consumer spending for the foreseeable future, and potentially permanently. Consumers have told us that they plan to spend more money online even when COVID-19 is no longer a factor in their lives, and that the criteria they use to decide which payments methods has changed. For businesses, expanding the options available in their online checkout to retain and acquire new customers will only grow in importance.