COVID-19 has disrupted multiple sectors in 2020.
Due to the coronavirus as well as related lockdowns and government measures, the hospitality, travel, and tourism industries have been struggling to survive the crisis. At the same time, businesses in other sectors are increasingly taking action to adapt to the new normal.
The payment industry was also affected in which the pandemic fueled a global shift from cash to digital transactions.
As a result, both business and consumer preferences have changed, creating new trends in the global payment market for 2021 and beyond.
One of the most important impacts of the COVID-19 pandemic was a significant reduction in worldwide cash usage.
According to McKinsey's 2020 Global Payments Report, an expected shift of four to five percentage points in the share of global payments executed via cash will commence by the end of 2020. Interestingly, this value is down by 69% from 2019, representing 4-5 times the annual decline in cash transactions over the past few years.
Between 2010 and 2020, cash usage declined by 31.5% in Japan, 48% in South Korea, 34% in Singapore, 22.5% in Malaysia. At the same time, citizens utilized 84%, 58%, and 45% less cash in Sweden, the UK, and the US, respectively.
Contrary to cash, digital and contactless transactions have become increasingly popular in 2020, and we expect this shift to dominate the global payments market in 2021 and beyond.
As consumers are going digital, they have increased demands for a convenient, fast, and cost-efficient payment experience. Partly due to that, e-wallet services have significantly grown their market share in 2020.
According to Facebook and Bain & Company, growing by 8% since 2019, digital wallets (22%) have ranked the third among the most-preferred payment methods just after cash (34%) and credit and debit cards (22.7%) in Southeast Asia in 2020.
As long as the digital revolution continues to take place in 2021, e-wallets can potentially take over cash's dominance in the SEA and other regions as well in the next few years.
The Global Payments Report 2020 confirms this statement as researchers anticipate that digital wallets will dominate the industry as the most popular payment method for both ecommerce (52.2%) and physical POS (29.6%) transactions by 2023.
"Since the start of the pandemic, consumers have been increasingly looking into contactless payment methods, such as e-wallets, to replace cash. Now, payment providers have to expand their solutions with new, innovative features to make the digital transformation as frictionless and easy as possible for users. For example, at STICPAY, we introduced the local bank wire service in seven Asian nations for our e-wallet solution to make deposits and withdrawals inexpensive and rapid for our customers," James Bay, STICPAY's Customer Service Director, stated.
With global availability in over 190 countries and a strong foothold in Asia, STICPAY has been facilitating the digital transformation by combining enhanced security, convenience, and a cost-efficient e-wallet service. Besides consumers, STICPAY also positions itself as an attractive financial solution for merchants by offering both a fiat and cryptocurrency payment gateway at competitive fees to businesses.
As consumer behavior changes from offline to digital, payment providers have been experiencing increased demand for instant transactions.
According to McKinsey, the UK's real-time bank transfer network, Faster Payments, has seen an over 10% increase between Q4 2019 and March 2020.
For that reason, governments and financial providers worldwide are expected to invest heavily in the development of real-time payment networks to fulfill the surging consumer demand for speedy transfers.
The rapid transformation from the old, obsolete banking networks (especially for international payments) creates a win-win scenario for every party involved.
While consumers benefit from decreased transaction fees and easier, faster, and more predictable payments, immediate transfers help financial providers reduce their operational and maintenance costs.
“As major market players are focusing on enabling instant payments, we will also see developments in the area of cross-border transactions through partnerships between global service providers and local financial institutions in 2021,” Bay added.
Blockchain and distributed ledger technology (DLT) creates more transparent, secure, and traceable payment networks in which users can transfer money without intermediaries.
As a result, highly efficient systems can be created that feature decreased costs, fast, (near-)instant transactions with numerous use-cases (e.g., supply chain management and financing, cross-border payments).
For that reason, an increasing number of banks, institutions, governments, and enterprises will adopt blockchain technology in the near future.
In addition to DLT, financial providers will also experiment with digital currencies. Despite the pandemic's negative effects, cryptocurrencies have increased their market share from January 1st’s $191.5 billion to $646 billion by December 18, representing a Year-to-Date growth of 237%.
Furthermore, to fulfill the demand for cashless payments, governments worldwide have entered into a heated race in 2020 to create their central bank digital currencies (CBDCs).
While the Bahamas has already launched the digital Sand Dollar in October, China has been leading the development of CBDCs among major economies with multiple pilots and a draft law being created to introduce the nation's digital yuan project.
CBDCs share many features with cryptocurrencies. However, they are issued and controlled by the state instead of the community.
For that reason, while still featuring most benefits of digital currencies, governments have greater control over electronic payments and better insight into their citizens' finances with CBDCs. For example, this allows the state to crack down on illegal activities and payments fraud more efficiently.
McKinsey's report revealed that there has been a new trend among financial institutions to shift their banking activities from physical branches to online.
Australian citizens could have already experienced this phenomenon's impacts as the top four financial institutions of the nation have closed 175 branches and removed 2,150 ATMs in the Oceanic nation since June.
As a result, virtual banking is expected to take over its physical counterpart.
At the same time, it will also lead to the rise of digital-only fintech firms and institutions that allow users to open and manage their financial accounts from the convenience of their smartphones without traditional banking's unnecessary paperwork.
“As part of the digital revolution, consumers are learning how to handle and control their finances online more efficiently. This is partly the reason why we are seeing – and will see – neobanks and fintechs getting increasingly popular among consumers worldwide,” STICPAY’s Bay stated.
Organizations have been experimenting with artificial intelligence (AI) and machine learning (ML) solutions in numerous industries to automatize their operations, reduce their expenses, and gather more valuable insights from data.
According to the IDC, while global artificial intelligence spending will surge from $50.1 billion to $110 billion between 2020 and 2024, financial providers are expected to increase their AI investments from 2019's $1.584 billion to nearly $4.3 billion by 2024 in the Asia Pacific alone.
Along with retail, the banking industry is spending the most on AI and ML research, according to IDC's researchers.
One of the main reasons why financial providers will follow this practice in 2021 is due to AI's ability to detect and prevent payments fraud, reduce customer service- and compliance-related costs, and leverage data to optimize business processes.
“In addition to AI, we will see an increase in the usage of biometrics security features. Using fingerprints or facial recognition technology does not only take the customers’ safety to the next level but also help ensure consumers that their data is adequately protected,” Bay said.
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