This week our Client Relationship Director, Miles Thresher, blogs about trends in digital payments. Find out why consumers are moving away from cash and what opportunities and threats this phenomenon poses.

The Digital Landscape

E-commerce is poised to exceed $1 trillion by 2023.  Figures like this are almost inconceivable in their size. Putting this into some sort of perspective though, this figure represents nearly 1/5th of US retail.  

In total.  

Digging a little deeper, digital payment volumes are predicted to increase by almost 11% globally through 2020.  So; here is another huge figure for you!  That is a whopping 726 billion transactions.  As such, this presents a massive revenue opportunity.  Traditional banking institutions aren’t the only ones who are undergoing digital transformations to muscle in on this opportunity. New kids on the block are elbowing their way into the market; in fact, it seems that the old-fashioned banks are trying hard to copy them. As our inclination toward non-cash payments swell, the dynamics within the payments industry are shifting.  Savvy, entrepreneurial startups are forcing established players to run with the ball…or drop it altogether.  

As consumers, we expect simple, fast and seamless payments, and providers are not blind to this. The digitisation of our daily lives is undeniable.  Whether you like it or not, the revolution that is the Internet of Things (IoT), means that there is little of our lives left that are not connected. Recent data published by Ericsson forecasts that by 2022, there will be around 29 billion connected devices, of which around 18 billion will be related to IoT.

New Kids on the Block: The Shake Up

This rise in e – and m-commerce is indicative of our dependence on the tech in our pockets, and the front-end methods that consumers are using to make payments are evolving rapidly. The surge in mobile P2P (person to person) and mobile in-store payment options are commonplace in the developed world.  Indeed, the ubiquity of P2P services like Venmo and Square Cash looks set to propel digital P2P to $574 billion by 2023.

Digital payment trends go beyond this though.  The surge in voice and chatbot payments and those from connected devices are all increasing transaction touchpoints for providers looking to diversify into developing nations and markets.  Swathes of African consumers do not have credit, debit cards or even bank accounts, for example… but they do have access to a connected device and a digital wallet.

The Asian and the EU markets are both on board with digital payment platforms, and to date, global payment systems have seen much of their growth across these regions.  

Chinese fintechs already manage more than 60% of online payments, while Singapore’s PayNow – a collaboration between the country’s major banks – captured more than half a million users in its first month; a figure that represents one-tenth of the adult population.   Meanwhile, across the continent, Alphabet recently launched their digital payment service in India, as of course did industry heavyweights, PayPal.

According to Forrester, mobile payments have also swelled across Europe.  Looking at the 6 years between 2015 and 2021, it has been forecasted that such transactions will grow by almost 300%…from $52 billion to $148 billion. Scandinavian countries are known for embracing progression and here too, they live up to their reputation. Half of Norway’s consumers use the DNB’s P2P payment app.   

digital payment trends paypal payment
PayPal is one of the world’s largest e-wallet providers.

The Digital Payment Space is Crowded

The digital payment platform ecosystem is busy, thriving and noisy.  Huge tech giants such as Apple and Alphabet have created their own digital payment offerings, as have traditional mainstream financial institutions.  Alongside them, sassy and exciting Fintech startups are more than making their mark. Stripe, Transferwise and WePay are all payment gateway solutions accomplishing crucial tasks in online purchasing and transaction management.  Even corporations like Starbucks and Facebook have diversified into e-payments. In fact, the most popular digital payment app in the US is… Starbucks!

While in the short term, it is unlikely that any one of these companies will abandon cash payments altogether, they are certainly forcing the naysayers to innovate and transform to meet the three pillars of consumer expectation; those of speed, flexibility and convenience.

In short, there are three categories of “digital wallets”; the devices that allow consumers the freedom to make electronic transfers  –

  • Established credit card companies such as Visa and American Express offer card network wallets that maintain a more status-quo approach for issuers while offering consumers a more progressive and improved experience over physical cards.
  • Transformative Fintechs which challenge traditional institutions by offering P2P wallets; those which perform global and direct account to account transfers without (or reduced) fees or delay.  
  • Device Wallets which hold multiple cards and may, as the market develops, provide independent value storage or link directly to the customer’s bank account.

As yet, no wallet type is more popular or dominant than another. Broadly speaking, the digital giants are able to offer a seamless experience across a point of sale, in-app and browser channels giving digital wallets an edge over competing the payment types.  Having said that though, there is one platform that is enjoying booming levels of growth. P2P wallets are blossoming, especially amongst young consumers whose attitudes and lifestyles and are most receptive to change.   Not only is this demographic the most expectant of digital ease they live lives which necessitate this level of financial freedom. Such services allow them to split dinner bills with zero effort or share household utility payments.

The Obstacles

Of course, with any disruptive technology, there will always be hold ups and potential hurdles to overcome.  

Perhaps topping that list is cybersecurity. Generally speaking, digital payment platforms are thought to be safe spaces.  Having said that though, hackers are, more often than not, always one step ahead.  If we are to move forward and stray further and further away from traditional banking practices, digital technologies and those managing them cannot afford to be complacent.  

Digital Identity is another area of concern. Online payment systems make transferring funds quick and easy, but does that make it quick and easy to pretend to be someone else whilst using them? Digital identity is a fast-moving concept. Over recent years, it has become less transparent and more “real world”. Our online footprint is so strong these days, that digital payment platform verification services have a vast digital library at their disposal.  You can cross-reference the records with ease.

With new digital payment trends, the regulation of the space and the roles of regulators have also been called into question by industry experts.  For instance, is PayPal a bank? Not really. Should we regulate the space? At the current time, regulatory bodies appear to be sitting back and taking a light touch with both digital payment systems and their providers.  That being said, if the market continues to grow at its current rate this won’t always be able to be the case. As large tech companies reshape the digital payment space, many platforms will face compliance and regulatory requirements outside of their traditional remits.  Providers will need to think about how they account for sales taxes and cross-border transactions, for example, and what legal restrictions might be applicable here.

A Fresh Approach

Apart from being ahead of the game in terms of tech, these digital financial services are turning more than just the practicalities of banking on its head. Last summer, challenger bank Monzo announced their intentions to ‘bank the unbankable’.  Refugees, recent immigrants and the homeless are all groups formally excluded from traditional banking models.  

Monzo recognised that being able to participate productively in society begins with a bank account. Monzo want to fix it with their digital inclusion initiative. The bank is working to include more types of ID in their sign up process.  For example, being a recent refugee you may have a biometric residence permit that you could use instead of a passport. Monzo is expanding this to include application registration cards.  Refugees that have made asylum applications but haven’t received leave to stay yet can use these as legitimate forms of ID. Tristan Thomas, Head of Marketing and Community at Monzo, explains that;

“The basic bank account project is about the first step for financial inclusion… It’s about getting people onto the ladder in the first place with an account number and a sort code, so they can get paid”.

The bank is looking to expand these services further.  The homeless also stand to benefit from this transformative approach to banking.  It’s virtually impossible to get a bank account without a home address, which keeps the cycle of homelessness turning.  Thomas says that Monzo is looking to offer these basic accounts by using a letter from a homeless shelter, or a benefits letter as an identification document instead of a passport.

It’s early days for Monzo’s financial inclusion initiatives but Thomas says the reaction so far has been positive.  Different organisations representing each of these under-represented marginal groups have reached out and want to spread the message.

Embracing the Boom

In sum, the digital payments platform is one that facilitates access to a vast array of benefits and convenience. They have changed and will continue to change the face of finance and business as we know them.

Here in the UK, investment in Fintech reached heady heights throughout 2018 and continues to be a major draw for venture capital investors.  Last year, UK FinTechs received £1.17bn. Following renewed investments, several London-based fintech companies reached unicorn status in 2018 – this includes a £177m funding round for Revolut and an £84m Series E funding round for the afore-mentioned Monzo.

This is a space that will continue to diversify and grow with its revolutionary approach to both banking and social inclusion.  

If you are looking to grow your career, or wish to be a part of this next wave of financial transformation, we may be able to help. Get in touch with us to discuss your next move.


About the author: As Client Relationship Director, I am responsible for helping grow the new and existing client base of Ignite Digital. I work as a “trusted connection” with my clients and candidates aiming to deliver the best service I can to connect talent to opportunity.

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