As the coronavirus pandemic took hold in March and the U.K. went into lockdown, many of the country’s e-commerce businesses suddenly found themselves facing a nigh unprecedented level of demand.
Adam Taylor, co-founder and chief executive of PetShop — one of the biggest online pet shops in the U.K. — recalled the sudden surge in orders as pet owners looked to stockpile everything from food to toys for the next few months. “We went from 1,000 orders a day to 4,000 orders a day,” said Taylor.
But unlike many of its competitors in the pet products market, an industry with a predicted value of £2.3 billion by 2023, PetShop was able to scale up its payments processing to handle the sudden rush of orders within just two days. Taylor explained this was only possible because the company had switched to a cloud-based payment service provider ahead of the pandemic.
Over the past few years, the emergence of novel cloud-based payments systems has begun to increasingly threaten legacy payments infrastructure across the world, and many of the new fintechs occupying this space predict that cloud systems are here to stay following the events of 2020.
“The pandemic has accelerated the growth of both e-commerce and cloud payment processing at a rate and level which nobody had foreseen,” said Matt Jackson, of fintech Path81, a provider of cloud-based payments solutions. “It has compressed things which normally would have taken five to 10 years, into 90 to 120 days.”
As well as increased flexibility, one of the main reasons that businesses have been forced to turn to cloud-based systems during the pandemic is simply due to the risk of key staff members involved in operating legacy infrastructure falling ill, resulting in service disruption, lost business and cash flow.
“If this occurred during a peak period, the financial repercussions could be significant,” said Michael Donaghue, CEO of IPSI, a specialist cloud-based fintech which delivers tailored payment services.
The decision to switch is not always straightforward, especially for larger companies that have long standing, multi-faceted relationships with legacy payments organisations.
“You get large IT companies who need a more uniform solution, but they have a long-term relationship with companies such as Chase Paymentech, who buy many millions of dollars of their services every year, but also handle their payments,” said Jackson. “So the management are reluctant to change because they’re being held hostage on the sales side of things. This kind of situation happens all the time.”
In addition to the pressures being inflicted from the current crisis, the increasing demands from regulators in terms of compliance and security regulations — driven by the rise in cybercrime — have forced many businesses to outsource their payments processing capabilities to the cloud. New laws such as the Global Data Protection Regulation have added even more layers of bureaucracy to the process of making cross-border transactions. Donaghue pointed out that many countries now have strict data security legislation and a privacy commissioner, which can fine companies over $1.5 million for data infringements, while violations of GDPR security rules can see businesses fined up to 4% of their annual turnover.
“The pandemic has been preceded by a cybercrime epidemic,” he said. “There is a virtual arms race between the cybercriminals and the security compliance regulators, so the business costs associated with such compliance continues to rise. Businesses are seeking to outsource these activities so that they can focus their attention and resources on their core business activities while leveraging the specialist skills of cloud-based payments services. These models provide faster reach to market, lesser maintenance overhead and ease of use to end customers when combined properly with level 1 Payment Card Industry Data Security Standard Compliance which represents a compelling service proposition.”
But the coronavirus pandemic is likely to have an indelible impact on the future of payments processing. Donaghue said that IPSI have been inundated with queries from businesses needing to find a way to quickly replicate their in-store shopping experiences online over the past few months.
“While COVID-19 may wax and wane in the years ahead, consumer behavior is changing and businesses need to adapt to remain competitive,” he said. “Most companies lack the focus, specialist skills and resources to compete with specialist third party service providers, who do this day in day out. Traditional payment technology be it point of sale equipment or online payment gateways, often lack the flexibility to meet the unique needs of individual businesses, especially when provided by the banks.”
