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TRENDS



INFLATION IN EUROPE AND THE „HIGH-LOW” ECONOMY

The Mastercard Economics Institute says a „high-low” economy has emerged due to
the prolonged inflation.

INSIGHTS



IN-CAR PAYMENTS

Mercedes-Benz has partnered with Mastercard to introduce in-car payments using a
fingerprint sensor.

INNOVATION



WALLET EXPRESS

Revolutionizing digital payments in Europe

TRENDS

Inflation in Europe and the „high-low” economy
The Mastercard Economics Institute says a „high-low” economy has emerged due to
the prolonged inflation.

The „high-low” economy

Inflation has had a major impact on European economies in the last two years.
While its peak period has passed, it persists and its influence can last for a
long time, according to a study by Mastercard Economics Institute. It says a
„high-low” economy has emerged due to the prolonged inflation.

The mid-market squeeze

European consumers have been facing the highest inflation rates in decades since
2022. This has led to a shift in consumer behaviour, creating a „high-low”
economy where high-end and low-cost spending is prevalent, while the middle of
the economy is squeezed out. This change is due to the rise in energy and food
prices since late 2021, which has caused consumers to allocate more of their
budget towards these essential items and reduce spending elsewhere.

The inflation rates and the contributions of food, utilities, and other items to
inflation varied across European countries. During the peak period of inflation
in the first half of 2022, most Western countries, such as the UK and Germany,
experienced soaring energy and housing prices, while in countries like Hungary,
Romania, and Slovakia, food prices were the main drivers of inflation. On
average, energy and housing contributed the most to year-over-year inflation in
the Eurozone.

The major contributor to inflation in Slovenia in 2021 and the first half of
2022 was energy, which was gradually replaced by food and other items by the end
of last year and the start of this year. Following the trend of Western
countries, Austria was mainly impacted by energy prices, with food inflation
remaining around 2.5% even during its peak period in January-February. It should
be noted that liquid fuel price inflation peaked at 118.5% in March 2022 in
Austria, while both Slovenia and Hungary implemented fuel price caps during that
period. 

Essentials-driven inflation affects consumers differently based on their income
level. High-income consumers can afford the cost of essentials and still spend
on luxury items. Less affluent consumers have had to cut back on non-essential
spending to afford the higher cost of basic necessities.

Between September 2021 and September 2023, only Hungary and Slovenia saw a
slight decrease in the share of essential items in the standard cardholders’
consumer basket, while in all other countries it increased. Compared to 2019,
the UK experienced the greatest increase of 8.9% in 2023, the essentials having
reached 31.8% in the standard basket. However, Hungarian and Slovenia standard
cardholders already had a higher proportion of essential products in their
consumer baskets (48 and 38.9 per cent respectively) than in those of their
counterparts in higher-income countries. It appears that the proportion of
essentials in more affluent countries is convergent with that in less affluent
ones. This convergence, however, is not a rise of the less affluent countries to
the high-income ones, rather a descent of the latter to the former.



Trading down

As inflation rises, affluent consumers are spending on non-essentials while
middle-income consumers opt for cheaper alternatives. Low-cost options are
popular among low-income households, who are forced to make difficult budget
decisions. Our „bella figura” index tracks fashion spending in Europe and shows
that mid-market spending was lower than luxury and mass-market spending at the
start of the inflationary period in late 2022, indicating the rise of the
high-low economy.

A similar trend is visible in the restaurant sector. Fast food is becoming more
popular than full-service sit-down dining, especially among standard cardholders
and in countries with higher inflation rates.



In Europe, inflation has reached its highest point and prices are now increasing
at a slower rate than wages in several European economies. Higher interest rates
are now the main economic headwind and could affect both affluent and low-income
consumers. However, elevated „core” inflation could make affluent consumers more
price-sensitive over time, leading to a „bottle economy” where they switch from
luxury to mid-market brands. 

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INSIGHTS

In-car payments
Mercedes-Benz has partnered with Mastercard to introduce in-car payments using a
fingerprint sensor.

Buy gas with your fingertip? 

CEO of Mercedes pay on securing the future of in-car payments

SEPTEMBER 25, 2023 | BY CHRISTINE GIBSON

Unless you learned to drive within the past few years, you probably remember
digging around in the cupholder for coins to feed the parking meter or hanging
out the window to slide cash in the slot of a parking garage payment booth.
Recent advances in digital payment technology have made those payments easier.
Now you can just tap on the infotainment display in the car to reserve or pay
for parking.

Imagine if getting around town was even simpler.

That’s the ethos behind Mercedes pay+, an in-car e-commerce platform that car
owners can use to buy Mercedes-Benz products and services. Now Mercedes pay has
partnered with Mastercard to make paying from inside your car even more secure.
Starting with 3,600 service stations in Germany, customers will be able to use a
fingerprint sensor in their car to pay for fuel, eliminating the need to enter a
PIN at the pump or authenticate via mobile device. For the first time, in-car
payments will be possible at the point of sale — turning your dashboard into a
convenient payment device.

The Mastercard Newsroom sat down with Nico Kersten, CEO of Mercedes pay, to talk
about the evolution of the payment platform, the challenges his team faced, and
what to expect next in in-car payments.

You launched Mercedes pay+ in 2018. How has the acceleration of digitalization,
particularly during the pandemic, shaped its evolution?

Kersten: The automotive industry has changed a lot over the past decade. The car
itself, the software and the hardware have all risen to a higher level. The same
is true for payments. When I started at Mercedes-Benz 20 years ago, no one was
even thinking about the car as a payment device. But the automotive industry’s
business model is expanding. We’re not just selling and maintaining cars; with
our comprehensive Mercedes-Benz ecosystem, we make life easier for our
customers. In this we bundle all areas related to the car. Digitalization opens
up completely new possibilities. For example, we offer them easier access to
everyday services, like charging, parking and fueling through connectivity with
third-party providers. With the recent innovations in automotive and fintech, we
can take the in-car payment experience to the next level.

What challenges did Mercedes-Benz face in the authentication of payments and
other digital devices?

Kersten: Our cars are known for their safety. The same is true with our
payments. We ensure that card data, for example, is saved securely, and we
comply with all regulations regarding payment authentication. Europe has
stringent rules for customer authentication, which protects the customer, but it
is not designed to improve customer experience. That was the challenge we needed
to overcome, and we worked with Mastercard to make the authentication experience
easier. As a result of our collaboration, we can now offer biometric
authentication in the car.

„We’re working hard to keep giving our customers the most valuable gift: their
own time.”

Nico Kersten

We talked about the experience of paying right from your car. How fast do you
think drivers will adopt the service of paying digitally from the car in their
everyday life?

Kersten: I’m optimistic, because our offerings to the customer are expanding,
with cool services that will quickly become part of the customer’s daily life.
Last month I was in the Netherlands. I drove into a parking lot and a message
popped up on the dashboard screen: “Do you want to pay for parking?” It was that
easy. The more you experience that, the more you don’t want to do without it.

Was there a sensor in the parking lot that automatically made that connection?

Kersten: Exactly. As we are in the era of connected vehicles, we know the exact
geoposition of the vehicle and can offer local services, like using the
on-street parking spot.

Part of the promise of self-driving cars is to turn your vehicle into another
space to shop, work, even entertain. How is Mercedes pay innovating for that
future?

Kersten: Self-driving vehicles will expand what the driver can do, but even now,
in the newest vehicles, all the passengers have a built-in tablet, and we are
already helping them watch a movie or play games. As the technology advances, we
have a lot of ideas about what drivers and passengers would like to use. We’re
working hard to keep giving our customers the most valuable gift: their own
time.

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INNOVATION

Wallet Express
Revolutionizing digital payments in Europe

Revolutionizing Digital Payments in Europe

In our tech-driven world, conventional wallets have transformed into digital
companions, reshaping payment methods and financial management. The surge in
digital wallet popularity is evident, with Juniper Research forecasting over 5.2
billion users globally by 2026, a remarkable 53% growth from 2022.

Wearable contactless payments, utilizing devices like smartwatches and fitness
trackers, have become a prominent trend. According to a Mastercard study in
Europe, 70% of wearable device owners use them for payments. Mastercard, at the
forefront of this movement, collaborates with issuers to diversify digital
wallet options for customers.

A notable development is the launch of Mastercard’s Wallet Express program. This
initiative simplifies the simultaneous integration of multiple digital wallets,
offering banks and card issuers an efficient and cost-effective approach to
expanding their services. Wallet Express supports various digital wallets,
including Garmin Pay, Xiaomi Pay, Amazfit, and integrators like Fidesmo,
Digiseq, and Tappy. Over 90 issuers, representing 700+ banks, with 100 million
cards, have joined, providing consumers with an extensive range of payment
choices.

Benefits of the Wallet Express Program:

Full Consumer Choice: Empowers users to pay with their preferred devices,
whether a phone, smartwatch, fitness tracker, or payment ring.

Convenient, Fast, and Secure Payments: Digital wallets and wearables enable
instant tap-and-go payments across diverse form factors.

No Implementation Projects: Banks seamlessly activate all wallet solutions in a
cost-effective manner.

A strategic collaboration within the Wallet Express program is with Samsung in
2024. Mastercard and Samsung join forces to extend Samsung Wallet, integrating
Samsung Pay and Samsung Pass into a comprehensive digital wallet. This
collaboration aims to offer a secure mobile application for organizing digital
keys, boarding passes, and identification cards.

Mastercard envisions a payment future where consumers choose their preferred
digital wallet, fostering a convergence of physical and digital realms. Wallet
Express embodies this vision, providing flexibility, convenience, and a
transformative digital payment experience.

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