By Mousume Roy, APAC Reporter, HCL Technologies Ltd.

 

Digital payments have now become the norm; driven by declining cash usage, changing consumer behavior and users increasingly expecting frictionless financial journeys.

According to McKinsey’s 2021 Digital Payments Consumer Survey more than 4 out of every 5 Americans used a form of digital payment in 2021. From browser-based or online payment apps, digital wallets, checkouts using a QR code or person-to-person (P2P) payments— digital products are gaining traction across the world.

Visa’s global Back to Business study mentioned that 73% of small businesses (SMBs) surveyed said that new forms of digital payments are fundamental to their growth, whereas 41% of consumers said they plan to shift to using only digital payments within the next two years or are already cashless.

The mobile wallet (Google Pay and Apple Pay) space has grown in popularity, with consumers preferring mobile wallets for convenience to manage credit cards, memberships, and reward points directly from their mobile device. According to FIS PACE research, 32% of mobile wallet users now have three or more mobile wallets downloaded on their smartphones.

Rahul Singh, President, Financial Services and Digital Process Operations at HCL Technologies, commented: “A buyer’s journey truly needs to be 'no click'. The rise of digital wallets is proof that customers expect companies to offer a variety of payment options. The cumbersome process of entering Credit Card details will soon become obsolete”.

“Today’s momentum in digital payments is heavily supported by the regulatory environment for next-generation payments. Backed by technical innovation, growth leaders need to sharpen their value propositions, notch up security, and build payment experiences focused on customer’s emerging needs and expectations,” Singh added.

The rise of digital payment trends

E-wallet providers like Apple Pay, Google Pay, Samsung Pay, WeChat Pay, and even mobile money wallets such as M-Pesa in Africa have exemplified the pivotal transformation of payment. Asian markets are moving at a faster pace, driving new business models and innovation. According to PWC’s global survey, Asia-Pacific will grow fastest, with cashless transaction volume growing by 109% until 2025.

“With many banks racing to compete with fintech players offering innovative bill payment solutions focused delivering an exceptional customer experience businesses are going to have many choices when looking at adopting digital payment solutions. The future of payment looks bright, as there is a greater appetite from investors and innovators to modernize the financial service ecosystem.”, said Singh.

Juniper Research predicts that the total spend via digital wallets will rise from $5.5 trillion in 2020 to exceed $10 trillion in 2025. With payment details stored and accessed via a single application, digital wallets are both convenient and secure—opening up this platform for future growth.

Big tech’s threat to the free market in digital payments

A new kind of monopoly is threatening the fair competition in the digital payments space. Tech giants are infringing on every industry's space, altering the rules, and poaching customers. As an example, Apple has been hit with a lawsuit for using its market power in the mobile industry to ward off competition from other payment card issuers.

According to the complaint, Apple "coerces" consumers into using Apple Pay for contactless payments, unlike other competitors (Android-based devices) who let consumers choose wallets, such as Samsung Pay or Google Pay.

‘Big tech monopoly’ is nothing new. Congressman Ken Buck (R-Colo.) released a report detailing the rein of Big Tech's anticompetitive behavior. Iowa's Affinity Credit Union said Apple's anti-competitive conduct forced over 4,000 banks and credit unions that use Apple Pay to pay at least $1 billion in excess fees annually for the privilege.

To curb the market dominance of tech giants such as Alphabet unit Google, Amazon, Apple, Facebook, and Microsoft, European Union lawmakers approved new landmark rules – the Digital Markets Act (DMA) and Digital Services Act (DSA) which both focus on preventing anti-competitive wealth generation models and monopolistic practices of tech giants.

The risks of emerging trends

According to FT Partners Fintech Industry Research, digital wallets accounted for 44.5% of e-commerce payment transactions, and buy-now-pay-later (BNPL) took just a 2.1% share. However, the report forecasts that BNPL will double to 4.2% by 2024, even as the share of transactions funded by digital and mobile wallets will grow to 51.7% during the same period.

By allowing customers to pay for products in installments (interest-free) while the merchant receives full payment from BNPL fintech (e.g Afterpay), BNPL redefines financial decision-making and gives customers a better alternative to credit cards.

The convenience and user experience provided by BNPL (superior to that of card payments) has forced banks and credit card networks to partner with BNPL providers. Despite the benefits, BNPL providers are not yet subject to some consumer protection laws (that apply to credit cards), such as dispute protections—in cases of faulty purchase.

Similarly, real-time payments (RTP) and other alternative payment methods are gaining a market share away from traditional card transactions. However, growth leaders and payment organizations must remain diligent about the new and existing risks as fraud and scam incidents are rising in card-not-present transactions and in the P2P arena.

In an article on mitigating the risks involved in emerging payment trends, Jennifer Lucas, EY Americas Payments Consulting Leader mentions that we can expect to see “greater adoption of machine learning and artificial intelligence both for authentication and in risk management models and the development of risk and analytical tools that can leverage big data in new and innovative ways.”

Find out more about the future of digital payments in this infographic.