The payment industry is going through a transformation to Contactless Payments demanded by customer preference, post pandemic volume growth, and availability of FinTech payment platform innovations
Payments is a double-digit growth story thanks to the growth of cashless transactions and FinTech sector developments. Various payment organisations and FinTechs are improving digital offerings to meet the changing needs of customers.
Impact of Covid 19: The pandemic has a significant positive impact on electronic and wallet payments. Customers globally prefer to pay contactless via mobile payments or online e-commerce sales. However, the pandemic has also had an impact by limiting household incomes across the globe. The search for liquidity has been elevated and is expected to have significant upside for platforms like Apple Pay, Samsung Pay, and Buy Now Pay Later (BNPL) providers’ credit enablement.
Changing customer demands: Both B2C and B2B consumer behaviour is changing post-pandemic and B2C consumer payments are moving towards contactless mobile device-led payments, while B2B payments, which have traditionally remained on cheques and wire transfers are also seeing options of platform payments such as collections platform Mastercard Track.
Global payments market: Globally there are 3 trillion card payments, 35 million NFC enabled POS terminals worldwide and 200 million contactless cards. Global payments industry revenue is estimated to be $3 trillion by 2025. The global payments growth forecast: APAC (+33%); North America (40%); EMEA (+66%); Latin America (+50%).
Non-cash transactions are expected to double from 922 billion to 1.8 trillion in the next 5 years. Asia dominates global payments revenue pools.
- B2C/Consumer Payments
Traditionally consumer payments were through cheques and bank transfers, or credit/debit cards. However, with higher penetration in mobile devices and the increasing availability of many interesting payment platforms, the needle has moved significantly towards digital wallet payments. - B2B/Commercial Payments
This is a large opportunity. Some 51% of payments are paper cheques (down from 81% in 2004). There is a movement towards electronic and digital payment due to the ability to track digital payments, convenience, cost-effectiveness, security, and faster time to process. These payments have a 30-90 cycle time with multiple personas involved from procurement to account receivables account payable to billing teams. Healthcare is one industry that uses customised B2B payments compliant to HIPAA and privacy regulations.
The above digitisation is a larger opportunity to improve cash flow, simplify bookkeeping and taxes and save time and resources, increase security, and reduce the cost of transaction and settlement.
Prospective outlook on Next-Gen Payments
Cross-border payments are dominated by B2B payments. The average cost of cross-border payment is in the range of $25-$35 per transfer in 2021, which is likely to transition to cheaper and faster cross-border payments given the innovations and reduced domination of SWIFT. The high-cost structure is not sustainable for consumer payments growth, hence a new approach needs to be designed for effective fraud protection, anti-money laundering, and straight-through processing (STP) to reduce the cost. Long-term B2B payments must achieve a significantly lower cost driven by platform payments such as PayPal or Square.
Contactless payments post-pandemic are growing significantly across the world. 'Tap to pay' adoption has seen 90% growth in Australia in the year to Q1 2021. Higher mobile penetration combined with IoT/wearables availability in the mass segment is creating significantly higher contactless volume. Recent research suggests, 40% of all payments by 2025 would go through an eWallet, with mobile penetration above 80%, being the key driver for walletbased payments. The eWallet market is growing at a healthy CAGR of 15%. Among the modes of contactless payment are: use of a virtual or tokenized card; the adoption of proxy payments using National ID or other identity documents; and digital currencies.
Multi-currency wallets are being launched as global travel recovers. Banks like HSBC are launching multi-currency wallets allowing a customer to hold multiple currencies on a single wallet account. The main segment that would benefit will be B2B payments. Multi-currency wallets are already available in the US, the UK, and Singapore and are likely to become widely available from 2022 in other key cities.
Buy Now Pay Later (BNPL) is a major trend in the payments industry and is likely to grow at a CAGR of 20% by 2028 to $20 billion. BNPL allows the retailer/merchant to receive the full settlement for the bill from a BNPL provider, which in turn provides typically short-term credit to the customer. This option is generally targeted at young, cash-strapped millennials who do not have access to a credit card. BNPL has the advantage of being offered by merchant partners as integrated checkout providing a seamless customer experience.
It is worth noting the move by Stripe to introduce its clients to Klarna’s BNPL platform. Early data showed BNPL having a material impact in terms of an increase in-store sales by 27% and an increase in average order value of 41% after integrating with Klarna. Stripe and Klarna have banded together to fend off the response of Paypal and Square. However, BNPL also has a couple of downsides: it allows a youngster potentially to spend much more than they can afford. This is an ethical issue and criticism has already been levelled against BNPL providers and regulation may follow; and using BNPL may also limit consumer choice to those merchants offering the BNPL payment option in a way that using a credit card does not.
P2P payments allow consumer transactions to be made in the P2P framework due to the convenience of making contactless payments on a mobile device connecting to a bank account or card, a highly secured framework. China and India were among the first markets to commence P2P frameworks. There are innovations like requests to pay (RTP) services, where contactless payment is initiated by the payee and the payer approves the payment. P2P payments are expected to grow at a CAGR of 17% from 2021 to 2030, reaching a value of $9 trillion in transaction market size. One of the challenges that needs to be addressed in P2P payments is a regulatory framework for crossborder payments and the increasing number of scams in the last few years. US consumers reported much higher scam complaints in 2021.
Digital currencies are being planned by many central banks around the world. Nigeria became the first country in Africa to roll out its digital currency, the ‘eNaira’ in October 2021 and China plans to pilot its digital yuan in 2022. Europe has also moved into the next phase of investigation for digital Euro feasibility. Almost 85% of global regulators are working on some form of digital currency (CBDC).
ConclusionThe outlook for both B2B and B2C payments is positive with digital cashless payments set for double-digit growth while traditional payments channels/systems are set to go through a transformation to cashless in a phased manner based on the maturity of the markets and the will of the relevant central banks. Cashless payments will play a major role in the coming years with platform-based payments and suppliers like Stripe and PayPal continuing to disrupt the market.
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