The growth trajectory of digital payments is seeing a sharp uptick as consumers move from simple digital payment modes to a more customized and personalized omnichannel digital payment experience. Here’s what you need to know to prepare for a digital payments future.
Digital payments have evolved significantly over the last several years, and that evolution kicked into high gear during the pandemic. Consumers quickly adopted new preferences, erring on the side of digital, and became more tech-savvy in record time. The number of digital wallets increased from a mere 2 million globally in 2016 to 2.8 billion in 2020. As convenience and customization pushed consumers towards remote and touchless options, digital payments have continued to grow and evolve into much more.
The stroll to a cashless society that the pandemic accelerated is now a fast-lane drive. However, the notion still has a troubling ripple effect on the underbanked and unbanked. Even with consistent growth from 51% in 2011 to 68% in 2017, to about 76% of adults having accounts with banks, financial institutions, or mobile money providers by 2021, roughly 1.4 billion people still remain unbanked even in 2022. While that number is trending downward, the possibility of a spike due to economic volatility and the surge in digital dependency is not out of the question.
Yet the push away from cash continues, with businesses reporting more cashless payments than ever. And in 2023, the digital payment sector will expand beyond the retailer’s app wallets, too, at a CAGR of 11.80%. Digital payment transactions, which are expected to reach US$9.46 trillion in 2023, are projected to amount to US$14.78 trillion by 2027.
There are many opinions on both sides of the pros and cons. On the one hand, card brands (who stand to profit from a move toward digital payments) note that digital payments would reduce money laundering and tax evasion while cutting down on the resources needed to handle physical currency. Others cite privacy issues, the marginalization of the under- and unbanked, and digital fraud as reasons why cash shouldn’t be booted.
Regardless of the arguments on both sides, digital payments continue to rise, and payment organizations should pay attention to evolving consumer behaviors to stay ahead of the curve. A great way to go about this is by partnering with fintech. In fact, around 82% of banks are looking forward to the prospect of working with fintechs in the near future.
The global peer-to-peer (P2P) payment market accounted for $1.89 trillion in 2021 and is projected to hit $9.87 trillion by 2030 — growing at a CAGR of 20.16% during the forecast period, i.e., from 2022-2030. It’s no surprise these types of digital payments have done well during the last few years; they offer an alternative to cash for people who are looking to exchange funds with friends or pay for things like haircuts, rent, and other services that may accept non-traditional payment methods. Since P2P apps are tied to a person’s bank account, debit card, or credit card, there are no fees associated with this type of payment.
These user-friendly payments offer flexible ways to pay, but they are also being leveraged in new ways. While people in need may have turned to popular crowdfunding sites like GoFundMe in the past, they are now leveraging P2P payment platforms to send and receive financial help from friends, family, and strangers alike.
Even after three years of the global pandemic, people are comfortable being in their own space and working at their own pace. They no longer want to go out to buy, whether the purchase is significant or not. And even without the fear of touching surfaces, the growth of mobile payments spurts, where digital and contactless payments have offered people a seamless way to pay. The global mobile payment market size, valued at USD 2.32 trillion in 2022, is expected to grow to USD 18.84 trillion by 2030 from USD 2.98 trillion in 2023. As a result, merchants everywhere are amplifying their mobile payment offerings and including some form of no-touch payment, ranging from contactless cards to digital wallets and QR scanners.
The biggest takeaway from the findings on digital payments, especially the growth associated to the pandemic, is that consumers want options. It reinforces the importance of omnichannel payments and retailers’ acceptance of multiple payment types. For payment companies, it should signal the need for streamlining and securing digital payments.
In the same way that the pandemic highlighted the value of remote payment options, the pandemic’s aftermath demonstrated how quickly consumers can become familiar with new payment options in order to meet their own needs when they are in a bind. Payment service providers and retailers alike should not shy away from emerging payment technologies but rather focus on potential use cases and how they might improve the customer experience from start to finish.
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