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April 2021

 

3 - 4 Minutes

Spotlight on: New Zealand - COVID-19 has made the world physically smaller but digitally larger

New Zealand’s response to the COVID-19 pandemic has been hailed as the model by which all others should be judged. In early October, as the World Health Organization was reporting record new cases, the New Zealand Ministry of Health announced that there were no active COVID-19 cases in its hospitals. Outbreaks since then have been limited and swiftly contained.

Its success, due in part to rapid government action and clear communication, plus two ultra-strict lockdowns, appeared to risk huge economic damage to a country that at the outset had lower levels of ecommerce spend relative to many other developed nations. For example, before COVID-19, the share of consumers who purchased groceries exclusively online was just nine percent. However, the reverse proved to be true.

The clarity with which the government warned of the incoming lockdown, its move to approve significant support for workers and businesses, and a readiness among merchants and consumers to change, laid the foundation for a remarkable— and so far, enduring—shift to ecommerce. This cushioned the economic blow and holds lessons for businesses and policymakers globally, says Glenn Maguire, Principal Asia Pacific Economist at Visa.

The government “quickly removed some of the uncertainties that consumers and businesses in other countries were dealing with,” he says. At the same time, the country was a “peak plastic market with very high financial inclusion and existing facilities that make it easier to switch to ecommerce.”

That financial inclusion, meaning a significant majority of the population had access to financial services like bank accounts and payment cards, laid the foundation for the digital shift that was to come.

During April last year, the government instructed the public to stay home for all but essential trips for services like supermarkets and pharmacies. Couriers continued to operate, and merchants began innovating — in some cases shifting entire businesses online virtually overnight, according to Marty Kerr, Country Manager, New Zealand & South Pacific at Visa. That enabled consumers to double their ecommerce spend as face-to-face transactions dropped by half during the period.

“The infrastructure evolved really quickly,” says Kerr. “Small businesses were able to retain staff due to the government support and used the time to innovate. They developed digital platforms so when they got out of lockdown, they were ready with buy online, pick-up in store.”

Other nations that endured significant restrictions on movement have witnessed similar patterns demonstrating the scale and stickiness of the transition to ecommerce and digital payments.

“What we are seeing in some countries is that the longer lockdowns extended, the stickier the behavior has been,” says Maguire. “Rather than online shopping being a temporary substitute for face-to-face purchases, it becomes your new habit, so it is really a question of, once you move to a new form of payment, how long does it take for those behavioral preferences to change?”

The experience of consumers in New Zealand offers clues. On Aug. 11, 2020, Auckland detected four new cases, the first in more than 100 days. At noon the following day, the government advised anyone in the Auckland region to stay at home other than for essential personal movement.

Retailers were ready for the move, says Kerr. The digital platforms and delivery partnerships that flourished during the first lockdown were in place to cushion the economic impact. Once more, ecommerce began to surge, only this time at a faster pace than the preceding lockdown.

“People had either their card or credentials on file with merchants on their phone, consumers had become more familiar with the process and merchants were starting to partner with distributors more effectively,” says Maguire.

That meant much of the friction newcomers experience when using ecommerce for the first time had been alleviated, a crucial part of changing behaviors long term. When restrictions on movement were removed once more, face-to-face spending temporarily climbed to 125 percent of its pre-pandemic level, but there was no decline in ecommerce spend, suggesting ecommerce was no longer a substitute but a habit.

“Ultimately consumers will gravitate to what is a frictionless experience,” says Maguire.

He then illustrates this point with a common shopping experience for many consumers: checking in using a contact-tracing app, traveling and shopping while wearing a mask, but not before waiting outside until the capacity inside the shop reaches a safe level.

“Compare that to online, where you have a regular basket of groceries you order each week. You become less sensitive to delivery times because you’re working from home,” he says. “All that has fundamentally changed the equilibrium.”

New Zealand may be a small nation, but the United States, Canada and other much larger nations can draw direct parallels.

Many U.S. states pursued differing virus containment strategies, and in some cases, imposed quarantine requirements on out-of-state travelers, says Maguire. This significantly reduced the size of physical marketplaces as they effectively became statewide instead of national. The most successful merchants at cushioning the impact of the pandemic were those that were willing to meet consumers in the new, enlarged online marketplace.

“COVID-19 has made the world physically much smaller, but digitally larger,” Maguire says. “The fact that New Zealand, which was geographically smaller to start with, has been able to pivot to a digital marketplace—and make up for the scale missing from the physical marketplace—is a testament to its success.”

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