By Patti Murphy
ProScribes Inc.
As we close the books on a momentous year, it's a good time to think about how the events of 2020—most notably the COVID-19 pandemic—have changed the payments landscaped. The new norms of quarantining and social distancing brought on by the pandemic are forcing many consumers and merchants to rethink their preferences for legacy payments, like cash, and to find new ways to stretch their dollars.
The transition away from cash, led largely by younger consumers, was already underway before the pandemic hit. The Federal Reserve, which regularly surveys consumer payment preferences, reported that consumers used cash for 26 percent of purchases in 2019, down from 31 percent in 2017. A preponderance of those payments represented small-dollar purchases (under $10).
The Fed has yet to report on 2020 consumer payment preferences, but I'm willing to bet that cash usage continued to fall this year. The pubic has been getting mixed messages about whether the coronavirus can be spread through cash. Several reports in the early days of the pandemic suggested there was no risk, but a study out of Australia in October found that the coronavirus can survive on common surfaces such as money and phone screens for up to a month in room temperature environments.
A consumer survey by the fintech Rapyd revealed that more than half (54 percent) are concerned about handling paper money. The consultancy Accenture has said it expects 2.7 trillion transactions worth $48 trillion will shift from cash to cards and digital payments over the next decade. Not surprisingly, Capgemini reported that "mobile payments, digital wallets, QR payments and contactless cards are set to drive the future as customers move away from cash."
To the casual observer, then, it may seem ironic that cash discounting schemes are gaining steam.
Cash discounting, however, isn't about encouraging consumers to pay with cash. It's about saving merchants money on card processing costs without cutting into the residual streams of ISOs and merchant level salespeople (MLSs) by getting consumers to shoulder some of those costs.
With continuing financial pressures brought on by the pandemic, "It's almost like a perfect storm to push cash discounting forward," Austin Mac Nab, managing partner at VizyPay, said in a recent interview. Better than 70 percent of new deals submitted by VizyPay sales reps are now for cash discounting, he said. A smaller, but notable share, 10 percent, are implementing surcharging programs, where allowed by law. Altogether, about 20 to 25 percent of all VizyPay merchants are on cash discounting or surcharging programs, Mac Nab added.
While much of the evidence to date suggests consumers don't mind paying a little extra when paying with plastic (or online and mobile payments tied to card accounts), they also are looking for ways to stretch their spending dollars. This has given rise to renewed interest in buy now pay later (BNPL) and other alternatives to credit card debt.
A recent consumer survey by Ascent, a service of Motley Fool, found one-third of respondents have used a BNPL service at least once.
BNPL is a 21st century iteration of layaway plans, with one important distinction: consumers take possession of purchases immediately, and parse out payments, typically from their checking accounts, over a four- to six-week period. BNPL consumer finance schemes have been popular in recent years with younger consumers who often lack the kind of credit card limits needed for major purchases, like furniture, auto repair and electronics. But it's catching on with older consumers.
Afterpay, a fintech specializing in BNPL, reported that BNPL transactions at its retailing clients jumped 87 percent from January through November, while debit card payments posted an 18 percent increase and credit card payments fell 11 percent. Afterpay works like a virtual card; consumers purchase a mobile app and select it at checkout, then pay off their balances over four installments.
Other BNPL providers assess interest rates which, on an annualized basis, are similar to those assessed credit card purchases. Most schemes charge merchants a one-time fee of two to three percent of the transaction. Several BNPL firms work with ISOs and MLSs to set up merchants on their programs, including Surv Financial and Flexxbuy. 
Patti Murphy is senior editor at The Green Sheet and co-host of the Merchant Sales Podcast. Follow her on Twitter @GS_PayMaven.
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