Covid-19 accelerates demand for digital payments

Covid-19 accelerates demand for digital payments

13 May 2020Reading time: 5 minutes

The persistent coronavirus pandemic infected global economy and caused consumption in many industries to collapse. The volume of payments for tourism, transportation and restaurants plunged sharply under lockdown and even some e-commerce sectors like furniture and clothes have gone quiet. Not the best news for digital payment providers. But on the other hand coronavirus-related circumstances seem to open up opportunities for such companies like Adyen and Wirecard.

Consumers shopping behavior is changing

Coronas impact on our daily life is significant. In the first place, Covid-19 is drastically changing consumers shopping behavior. Since many people are working from home and also becoming more cautious about staying at public places, it is causing changes to how they shop and how they make payments. To avoid human interaction inherent in going to the supermarket or having their dish served in a restaurant people tend to order food and even groceries like eggs or milk online. Because a large share of these purchases are paid online it is no wonder that payments related to online shopping are at record highs. This is where digital payment providers enter the game. Whenever a customer uses a debit or credit card to buy an item from an online seller a digital payment provider acts as an intermediary. Companies like Adyen or Wirecard offer online merchants several payment methods for different countries from one source. To pay by debit or credit card merchants would actually have to conclude a contract with each individual card provider for each individual country. Digital payment providers simplify this with a globally functioning system. For every purchase the digital payment provider assures that the merchant will receive his money. The debit or credit card provider transfers the amount to the digital service provider, which retains a fee and transfers the rest to the merchant. The more online purchases the more transactions need to be settled by digital payment providers, which are receiving a fee for their services. So a shift in consumers shopping behavior accompanying with more digital payments should increase digital payment provider’s earnings.       

Cashless is king

Digital payment providers’ revenues should also benefit from the fact that the Covid-19 pandemic has fanned public concerns that the virus may be transmitted by handling cash. The use of contactless mobile payments via apps is surging as people come to see their phones as the safer way to pay. For example Wirecard is cooperating with serval global payment app providers like Google Pay, Alipay, and WeChat, granting them access to millions of users. For each payment done via theses apps Wirecard receives a fee. The amount that Wirecard is receiving for a single transaction is hardly worth mentioning. However with many millions transactions per day the situation looks different. But will the shift to contactless mobile payments really outlast Covid-19 lockdowns? Some experts assume that the current situation may be a tipping point. First of all they point out that there is a habituation effect. The current situation forced customers to overcome the entrance hurdle of first time using. Now people are seeing how easy and save it is to use digital payments, and there is no plausible reason to quit this habitual behavior when lockdown comes to an end. Secondly the experts bring up that there will be a new normal after Covid-19 pandemic. Consumers concerns over touching cash and keypads will continue because people will fear an infection by a new unknown disease. So it seems very likely that the usage of contactless mobile payments will still accelerate after Covid-19 lockdown.

Adyen increases profits in the corona crisis

As the coronavirus boosted online shopping and online payments Dutch digital payment provider Adyen, which also processes payment services for Netflix and Uber users, published rising revenues and core profits in its latest first-quarter results. According to the company’s Chief Financial Officer Ingo Uytdehaage revenues related to e-commerce have been growing way faster than he ever expected. He also mentioned, that there might be a fundamental change in how shoppers buy. Within the retail segment, Ayden’s first-quarter online volume largely compensated for the drop in in-store volume caused by the lockdown. The company posted a total first-quarter revenue of EUR 135.5 million, an increase of 34% compared to the first quarter of the year before and the transaction volume climbed 38% year-on-year to EUR 67 billion.

Wirecard is planning for post corona times

Wirecard has recently launched a remarkable initiative. Under the title "Innovation for Now", the German payment service provider is bundling a whole range of value-added services together with its partners. Among others, DAX heavyweight SAP is a participant in this initiative. The goal of this joint venture is to offer services to companies of all sizes and locations that can help them survive in times of the coronavirus. Wirecard will offer some of its payment services at reduced rates or even for free. Even small shops such as bakers shall be able to use digital services like managing large orders and their payments via pay-per-link using WhatsApp or to quickly access 360-degree online shop solutions in order to switch from stationary to digital. A smart step by Wirecard granting the company access to many new corporate customers. The calculation behind this tactic could be that many smaller shops will probably recognize the advantages of digital trading and payment. This may turn into long-term business relationships and possibly to normal conditions as soon as this corona virus crisis is over.

The shares in detail

The Wirecard AG share is currently trading at EUR 86.16 (08.05.2020). The annual high was reached at EUR 162.30 (28.05.2019) and the annual low at EUR 79.86 (16.03.2020). At Bloomberg, 11 analysts put the share on BUY, 13 on HOLD and 1 analyst put it on SELL.
The Adyen NV share is currently trading at EUR 981.20 (08.05.2020). The annual high was reached at EUR 981.20 (08.05.2020) and the annual low at EUR 562.80 (10.03.2019). At Bloomberg, 14 analysts put the share on BUY, 9 on HOLD and 5 analysts put it on SELL.

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03/12/2022 14:13:49