Updated: Nov 4, 2020
Digital payments have evolved tremendously over the past few years, raising the question: where will digital payment technologies take us in the future? As more consumers become tech savvy the opportunities are endless, especially as we are only just now tapping into the unprecedented potential from global smartphone penetration with 3.2 billion smartphone users in 2020 against a global population of about 7.7 billion, or 41.5 percent according to Statista.
The impact of COVID-19 has further accelerated the shift in payment preferences, partly because of convenience, and partly because of the advice and emphasis to avoid physical cash where possible. Regardless of the reasoning, digital payments are not disappearing, and are only going to increase in popularity over the years to come.
Unsurprisingly, cards are currently the preferred choice of payments around the world, surpassing physical cash, yet mobile wallets are quickly gaining mass popularity with the industry set to reach $1 trillion in 2020.
So, to predict and ponder on where the future of payments is heading, let’s take a look at a snapshot of where we are today…
Moving towards a cashless society
According to the European Central Bank, the total number of non-cash payments in the euro area increased by 8.1% to 98.0 billion in 2019 compared with the previous year, with a total value of €162.1 trillion, and card payments accounted for 48% of the total.
Needless to say, Europe has a sophisticated and mature digital payments market, and the traditional cash infrastructure is now witnessing a decline in bank branches and ATMs, further demonstrating Europe’s move away from cash. In fact, Global data has predicted Finland, Sweden, and the UK are likely to be some of the countries leading the way to a cashless society.
On the other side of the world, China is currently the global leader in mobile wallet consumption, with nearly 70% of Chinese consumers using mobile wallets regularly. The country is projected to generate almost 80% of global mobile wallet revenues in 2020 and with these stats it is also expected that China is a strong contender in the race to a true cashless society. However, South Korea is giving China a run for its money (excuse the pun), and is predicted to be within the top-three cashless countries by 2022, with the majority of the infrastructure already in place and more than half of the country’s 1,600 bank branches no longer accepting cash deposits or withdrawals.
There are still countries that are highly dependent on cash, so what does their digital journey look like?
In Latin America’s developing market, 85% of transactions are cash based, and only 39% of the population has a bank account. This is partly due to the lack of trust towards the financial institutions, however despite the current uncertainty and mistrust experienced, there is a high adoption rate of mobile phones in the country, creating numerous opportunities for app based banking and payment alternatives which will inevitably drive digital payments. So much so that Brazil’s Nubank now has 8.5 million customers, and plans to expand and target millennials in Mexico, with further expansion into more of Latin America’s markets. Due to its substantial growth, it is now the most valuable neobank globally, with a valuation of more than $10 billion dollars.
A similar situation presents itself in India, where three out of four transactions are made by cash due to only a third of India’s population having access to the internet. Moreover, 20% of Indians have no bank account. Since 2016 there has been a slow but steady push towards digital payments which has now seen a surge in uptake since the Covid-19 outbreak. Digital payments will continue to be affected and influenced by the virus, but the infrastructure and smart phone penetration allows for a continuous increase in digitalisation. As a result, the government has a target of 1 billion digital transactions per day.
What’s next in the digital payments space?
In the not too distant future, we could see social media initiated payments, voice activated payments, cryptocurrencies, biometric payments including facial recognition all becoming mainstream. However, one point is for certain, mobile payments and mobile wallets will continue to gain mass adoption in the immediate future, and it’s worth paying attention to developing countries which will likely contribute substantially to this development.
As well as this, NFC and QR codes will see an uptake as a safe and fast payment solution. Despite the popularity of QR codes in China, other countries have been slower to adopt the payment method, especially the U.S. However, this is projected to change due to its cost effectiveness for merchants who will now require less infrastructure to process payments, whilst delivering more convenience for customers.
After China, the US, followed by the UK, are the second and third largest digital wallet markets, with ApplePay the most widely used product within both of these markets. With ecommerce now a global trend, this will further drive digital wallet consumption, and PayPal - once judged the worst business idea when it was first introduced in the era of cheques - is now the single most used digital wallet in the world.
The unbanked and underbanked segment throughout the world will provide the biggest opportunities for growth and innovation within the digital payments landscape and will contribute to the overall growth of digital payments. Financial inclusion provides opportunities for fintechs to deliver products which provide true value and address real needs, and in developing countries incumbents will be bypassed completely for a more agile and flexible approach in the form of challenger banks.
So, the question is, which country will win the race to a cashless society?
There’s an exciting digital journey ahead of us. However, as we continue to adopt digital payments wherever we are in the world, security and trust should be at the forefront of the experience, and therefore a secure, reliable, and robust payments infrastructure needs to be in place.
John Cragg, CEO, MYHSM