While there was no shortage of goings on this week, the eyes and ears of the payments, commerce and finance enthusiasts were more likely trained on the goings on in a bucolic Swiss mountaintop city named Davos. There in Davos, bankers, financiers, technologists, legislators, regulators and thought leaders of all kinds — not to mention a couple of Russian spies dressed as plumbers — gathered for the 50th annual World Economic Forum. Though there were many headlines pouring out, the International Monetary Fund’s (IMF’s) cut economic forecast, pessimistic projections for growth and overall highly conservative outlook on the coming year caught much attention.
The fireworks in Davos this week were mostly metaphorical. However, flash to the other side of the world and the fireworks are literal, as the Lunar New Year — a commerce event forecast to bring in more than $150 billion in spending among Chinese consumers over the next two weeks or so, much of it online — kicks off in China and throughout Asia.
It was an especially timely backdrop for PayPal and China UnionPay to announce an expanded partnership, which will give Chinese consumers the ability to link their UnionPay credentials with a PayPal account, and use them to pay at any of PayPal’s 16 million merchants worldwide. The partnership will also allow non-Chinese visitors in China to pay in-store, using a virtual UnionPay card that is autogenerated when PayPal is presented at the point of sale — a QR code is created, and funds are taken directly from the consumer’s bank account.
That was a lot of big news and potential out there this week. For the latest edition of PYMNTS' This Week in Payments, Karen Webster was joined by Brandon Spear, president of MSTS, to get a better look at what’s going on now, and what it might mean for what’s coming next.
The Davos Forecast: Cloudy With A Chance Of Recession
This week, the IMF modified its forecasts for 2020 in Davos — and the perspective seems highly cautious, if not pessimistic. The IMF is still projecting growth for 2020, but at a lower rate than it was in October 2019.
As of last fall, the IMF forecast a global growth rate of 3 percent for 2019, and 3.4 percent for 2020. The IMF has now revised those forecasts to 2.9 percent and 3.3 percent, respectively. According to officials, much of the downward revision was driven by concerns about developing markets, particularly lower growth in India. For 2021, though, the IMF has forecast a growth rate of 3.4 percent.
“The projected recovery for global growth remains uncertain. It continues to rely on recoveries in stressed and underperforming emerging market economies, as growth in advanced economies stabilizes at close to current levels,” said Gita Gopinath, the IMF’s chief economist, in a written statement.
That pessimistic uncertainty, Spear said, is something MSTS is increasingly hearing about when it interacts with clients going into 2020 — deep concerns that “the bull run is going to come to an end,” and how are they going to manage through that.
The specific concerns vary much by industry and vertical. Equipment sales and manufacturing function differently because they are doing business whether the economy is good or bad. When it is good, they are selling. When it is bad, they are maintaining. However, he noted, MSTS is seeing those in fleet management looking to get out ahead of their fuel costs, as well as firms thinking differently about product and capital improvements.
“I think everyone knows a [recession] has to happen eventually, and that the effects of that will be industry-specific — and so will the changes in calculations,” Spear said.
Interestingly, he noted, MSTS isn’t seeing direct evidence that this recession is imminent. Its partners aren’t reporting warnings signs, and it isn’t seeing that kind of data from what it considers “early indicator” industries, which would tell MSTS that the recession countdown clock is ticking loudly.
“But the longer the bull run persists,” he explained, “the more everyone starts to wonder if this is the year. That is why, with our clients, we are seeing a real dedication to the idea that it is far better to get ahead now than to try to build a response to a [recession] when it is already happening, and [when] there are a lot of people in the market looking for a solution.”
It is why he suspects this January has been so busy for MSTS, with much interest in its cash-flow management solutions. Smart CFOs are feeling the worry, he said, and making sure they are getting ahead of it.
The Big PayPal-UnionPay Partnership
Just as the final countdown for the Lunar New Year in China started this week, China UnionPay customers looking to shop globally during the two-week festival received some good news: shopping worldwide just got a lot easier, thanks to a partnership between UnionPay and PayPal. This partnership will allow Chinese consumers to create PayPal accounts, and use them with their UnionPay credentials anywhere PayPal is accepted. The agreement will also allow global consumers to shop in any physical location in China that accepts UnionPay’s QR code.
PayPal’s Senior Vice President of Global Payments Jim Magats told Karen Webster shortly after the news went public that the goal isn’t to compete with the domestic payment giants in China, but to build a two-sided network within the country that solves for the bidirectional, cross-border use cases that have kept commerce in check for Chinese merchants and consumers.
It’s an incredibly exciting move, Spear noted in his conversation with Webster, both for what it makes possible right now on the B2C side and what it could mean for B2B going forward. In some ways, the next logical set of questions to ask is about how to make the equivalent possible on the B2B side, so that a system currently dominated by fragmented matchmaking can bring firms together with a seamless way to make transactions happen cross-border between buyers and sellers when one of them is in China.
The PayPal announcement opens the door to two things. The first is more global players being able to port into China, and make those transactions possible. The second is, more currently, domestic and regional players becoming more global, and looking to connect buyers and suppliers end to end across global markets, payments included.
“B2B, for the most part, always lags B2C because it is so much larger and more complicated. But when you see the global commerce trends, and a deal like this between PayPal and UnionPay that lays the pathway, I think we see what the future can look like for B2B,” he said.
From direct experience, Spear noted, B2B is always much harder to work with, but the need is there. As this kind of deal goes into effect, he said, it is “genuinely encouraging” to think about what kind of bigger progress will emanate from there.
The Wave-To-Pay Rumor
The rumors about Amazon rolling out a “hand-based” payment system have been swirling since last fall, when the New York Post first reported that Amazon was trialing the technology, allowing employees to pay on customer-built vending machines via hand-scanning — with grander visions of rolling out the tech in Whole Foods locations this year. Though those reports were based on unverified sources, in December, Amazon filed a patent for hand-scanning technology, similar to what the New York Post had described. It seemed that Amazon might actually be moving forward with adding hand-based payments to its ecosystem.
However, further reports from new anonymous sources have indicated that hand-waving payments are coming (soon), and that the ambition for them is broader than originally reported. Amazon is not only looking to add hand-based payments to its own properties. If the anonymous sources are correct, Amazon is hoping to roll this technology out at large coffee shops, QSRs and any other high-frequency use location where a consumer might like to wave and go with their order.
The move to make payments based on a wave is not totally shocking, Spear said, given the way the market has been evolving as of late.
“I think the macro trend is to use biometrics as a mechanism for identification,” he said. “We’ve all been through this with our phones. It is almost hard to remember when we had to punch in a code to unlock them, since now we do it with our face or our finger primarily.”
He added that biometrics evolving into a role as a payment credential makes sense, in both B2B and B2C transactions, though he remains agnostic about whether or not hand-waving or hand-scanning will be the mechanism. To know that, he said, the rumors must be true, and Amazon must actually roll out the hand-scanning technology to see if consumers like it — and find it to be the seamless experience being targeted.
The interesting question, he noted, is how to adapt this technology so it can work away from the traditional point of sale, since both B2C and B2B customers are increasingly doing transactions online.
“I think the question is how can we make this work online for eCommerce. Will we wave at Alexa someday for the same kind of biometric authentication? There is a lot to think about in how to make this fully applicable to a range of consumers' lives,” he said.
However, looking over the headlines that dominated payments and commerce this week, many open-ended questions still remain as January 2020 draws to a close: how the economy will expand — or not — this year; whether the global presence of Chinese consumers will be much more felt through a host of new access points; and how biometrics as a category will continue to intersect and overlap with the world of payments.
While the answers aren’t yet known, they are certainly forthcoming — and likely to be covered here, as we wrap the week in payments, and the headlines that made the commerce world go around.