The predictions of a rise in digital payments made before the Covid pandemic are now out of date, with substantially more people opting for cashless or contactless payments than was expected. This has been fuelled by the stay home requirements in many countries and the distrust of the public about sanitation measures used by banks on actual notes.
According to Visa’s ‘Back to Business Study 2021 Outlook: Global Small Business and Consumer Insights’, 78% of global consumers have adjusted the way they pay for items in the wake of the pandemic’s impact on people across the globe.
This increase of digital payment systems, including peer-to-peer payments, mobile wallets, mobile point-of-sale (POS) devices and digital coins, has meant transparency, efficiency and convenience for both the business and private sector.
The digital payments market is forecast to grow at a compound annual growth rate of 13.7% between 2021 and 2026 according to ReportLinker – a demand driven by greater convenience, favourable government policies and evolving consumer behaviour, as well as COVID-19 disruption. Moreover, payments made via mobile devices alone are expected to exceed $2 trillion globally by 2023.
The fintech market has led the charge by stepping up its offerings to SMEs and private individuals, particularly those that are operating in cross-border businesses that require good forex rates coupled with speed of transactions. Traditional banks have not yet grasped the implications behind the massive move away from cash, though this trend is not new. China saw a rise in digital banking during and after the SARS epidemic in 2003.
Already China, Sweden and Finland are attempting to move to a cashless society but this is not the norm worldwide, especially in countries that have a large unbanked population, poor and expensive connectivity, and a distrust of government. In these countries, cash is still an important commodity.
Very high smartphone penetration across society has played a significant role in the evolution of mobile payments and, as the cost of these devices comes down, it makes it affordable. This increase and the ease of doing business are driving an upward tick in electronic payments for utilities, services, online purchases and even forex deals.
For government, digital payments allow tracking and tracing of economic indicators and a possible decrease in cash transactions of dubious origin. The data provided by such transactions allows fintechs to offer more services, based on a user’s profile. The same is true of online retailers, who have amassed considerable data on their customers’ preferences and needs,
Forbes reported that the central banks of both China and France are working on a digital yuan and euro respectively, the US has been discussing a digital dollar for quite some time and Sweden has run an e-krona pilot project, which is now ready to go into the next testing phase, using blockchain technology called Distributed Ledger Technology.
A survey in January 2021, by the Bank for International Settlements, said central banks representing one-fifth of the world’s population are likely to issue their own digital currencies in the next three years.
Many central banks see central bank digital currencies (CBDCs) as a means of warding off competition from cryptocurrencies and maintaining a central role for public authorities in the payment system.
Digital transformation needs appropriate government and international policies, significant technology penetration level and a wider spread of banking services.