Digital payments trend to outlast Covid
Tags: Payments, Digital Payment, Covid 19, Emerging Markets, Technology

Thousands of years since its first use, cash still dominates the payments industry, with over 80% of the world’s transactions conducted using this means of exchange. But change is afoot. The global digital payments market is expected to grow at a CAGR of 24% in 2020–25, and Covid-19 could further accelerate this trend as consumer spending patterns have seen a considerable shift towards digital payments since the start of the pandemic. Governments, regulators and private sector businesses have all been encouraging individuals to avoid cash transactions.

Digital payments improve transparency, cost efficiency and financial inclusion in the economy while consumers benefit from greater convenience and security. Markets where cash penetration is high and digital infrastructure is strong represent good scope for a shift towards digital payments; Russia, Morocco, Indonesia, Lebanon and Pakistan scan well.

Digital payments platforms led by telcos and fintechs are likely to emerge as long-term winners. Banks should benefit in the short term due to lower operating costs and higher fee income. However, long-term challenges of loss in market share and payment providers expanding into other banking products remain a major threat to the industry.

Consumers are moving away from cash

According to our survey of 600 consumers in six EM markets conducted in July, 48% of individuals are using more mobile payments and 26% are using more credit/debit cards compared with pre-Covid levels, a clear shift in preferences.

Network International, a leading payments solution provider headquartered in the UAE, has seen a pronounced change in the card usage patterns of its customers, with credit and debit cards used much more frequently for online and POS transactions than was the case pre-Covid.

Strong volume growth for digital payments platforms

Transaction volumes for many digital payments providers were hurt during the initial phase of Covid-19 due to widespread and strict lockdowns impacting economic activity, but, as overall activity has rebounded, the growth in total payment volume (TPVs) has accelerated.

Covid-19 could be the turning point for digital payments in many EMs

Digital payments adoption has previously been slow in many emerging markets. We think the major issues are: i) a lack of consumer awareness; ii) a lack of consumer trust; iii) limited touch points; iv) a large undocumented economy; and v) comfort with cash usage. Now with Covid-19, consumers and merchants who were earlier reluctant to shift away from cash, are both attracted towards digital payments. This is encouraging both parties to establish relationships with digital payment providers. Previously this had proved challenging despite significant marketing and promotional activities by those providers. Our experience indicates that once consumers have signed up and feel comfortable with the digital payments process, they become regular users due to key benefits such as greater convenience and better security.

Which countries are well placed?

Looking at the cash penetration and technology infrastructure score (based on mobile and internet penetration), Russia, Morocco, Indonesia, Lebanon and Pakistan appear well placed to shift away from cash.