The introduction of pre-paid, store, debit, charge, and credit cards represented sweeping changes that transformed the payments space. However, the era of plastic payment cards may be coming to an end, as digital payments options gain popularity among consumers.
Only one-third of connected consumers globally report having not used a digital wallet, according to Euromonitor International’s Digital Consumer Survey, which was taken by 20,000 connected consumers in March and April 2020. For purposes of this survey, a digital wallet was defined for respondents as a platform that securely stores users’ payment information and relevant personal details to enable quick purchases. In the 20 countries fielded, digital wallet usage among respondents was higher among emerging market consumers, with 74% reporting having used one, as opposed to 52% of advanced market consumers.
In emerging markets that were largely unbanked, high growth in the smartphone penetration rate, the development of internet and mobile network infrastructure, and low barriers to financial information and services have facilitated the transition from cash to digital wallets, often bypassing the plastic card revolution. In contrast, plastic cards remained ingrained in the culture of many developed market consumers. While there was a reluctance to switch, a growing, digitally adept generation and improvements in speed and convenience – which were demanded by consumers coupled with the advancements of technology – have boosted digital wallet adoption.
Asia-Pacific leads the digital wallet revolution
Asia-Pacific, except for Japan, contributes to the highest number of active mobile users, according to Euromonitor International’s Digital Consumer Survey. China, in particular, is leading the cashless future. Key reasons explaining the popularity of their digital wallets include increased security, ease-of-use, convenience, wide acceptance by merchants, government support to build an internet banking infrastructure, high smartphone penetration, and limited infrastructure and support for credit cards.
In the US and Europe, there is still a general reluctance to shift to digital payments and some of the reasons to widespread adoption include a long history of using plastic cards as the preferred payment method, a slow uptake from merchants, and a lack of trust due to privacy and security concerns. It will be an uphill battle for digital wallet operators to convince consumers to switch.
However, the adoption of digital wallets is set to increase as there have been many technological developments to remove friction from the shopping experience and reduce the pain points of existing payments processes. Moreover, there is a generational shift that will help drive adoption rates in the Western markets.
Source: Euromonitor International’s Digital Consumer Survey, March and April 2020
Changing consumer needs is giving way to new payment methods
In general, the changing needs of customers are demanding a shift in dynamics across how people pay. Within the consumer payments industry, the younger consumers are turning away from credit and opting for next-generation solutions such as buy-now-pay-later platforms and super apps, for example.
Increased mobility, resulting from globalisation, and constantly changing technology have made the world more interconnected than ever before. However, the ability to transact globally, also known as cross-border payments, is still an area that is lagging. Cross-border payments are the foundation of global trade and are increasingly a key factor in succeeding in the interconnected ecommerce market.
While cost and legacy systems are some of the inhibitors to transformation, financial institutions, fintech startups, and technology giants are re-thinking and re-inventing the global payment model and incorporating it into their digital wallets to keep up with what consumers want. Every operator would like to become the dominant global payment solution, but that is unattainable and idealistic.
The COVID-19 pandemic has accelerated the adoption of digital payments due to widespread fears of handling cash and touching surfaces such as PIN pads and touch screens. While habits of card usage are notoriously difficult to break, especially in Western markets, this is rapidly evolving as consumers turn to digital wallets. In Asia, the pandemic has also allowed super apps such as WeChat, Alipay, Grab, and Gojek to further strengthen their foothold in the payments space. Continual market campaigns and public education will be essential to help drive a permanent shift towards digital wallets.
Given the increasing volume of shopping across borders, we can expect companies across the entire payments process to not only compete against each other but also create partnerships to leverage each other’s strengths to meet demands for faster and cheaper payment solutions. Alipay and WeChat Pay are some examples of companies doing that. While they have solidified their positions in their home market of China, they began exploring opportunities by accelerating their international expansion strategy through partnerships with UK’s Barclaycard and selected overseas retailers to expand their digital wallet to other markets.
This article was published in our Payment Methods Report 2020, an extensive overview of what’s new in how people pay in the most relevant ecommerce markets.
About Hianyang Chan
At Euromonitor International, Hianyang is responsible for the research output and client support for the services and payment cluster across the Australasia region, which includes retailing, consumer finance, digital consumer, and food service. Hianyang continues to write and present on the industries he covers in various publications.
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