A year ago, the Economist Intelligence Unit (EIU) published a white paper, Going digital: payments in the post-Covid world, that showed how digital channels were replacing traditional modes of payments across the world, amid greater uptake of mobile wallets and other forms of digital payments.
EIU has now developed a new dataset, along with five-year forecasts, confirming these trends.
This white paper offers an overview of our forecasts for digital payments, as well as the accompanying stagnation of ATM numbers and the mixed outlook for card payments. It also looks at the new frontier for disruption: cross-border payments.
- Following a surge during the pandemic, when lockdowns forced consumers online, growth in digital payments will soften during our five-year forecast period (2022-26).
- The number of ATMs will stagnate or decline, while debit and credit cards will struggle to maintain market share as mobile payment platforms gain more traction.
- While digital disruption to domestic payments continues, the ongoing Russia-Ukraine war will cause parallel disruption to cross-border payment systems.
- Countries will seek to interlink their national fast-payments systems, reducing intermediaries and bringing down the cost of sending money abroad.
- Countries across Southeast Asia are in the process of interlinking their fast-payments systems to allow travellers across the region to purchase goods and services by scanning quick-response (QR) codes.
Growth in domestic digital payments will slow
Demand for online services grew exponentially during lockdowns early in 2020, and remained high in 2021 across most markets even after restrictions were removed.
The rise in online traffic has compelled businesses to set up digital marketplaces and improve customer experience on their platforms, spurring fintech firms to come up with new payment solutions.
The digital boom has given rise to embedded finance, the integration of financial services with non-financial offerings. It has also spurred the development of banking-as-a-service platforms, which allow non-financial companies to offer financial services through linkages with banks.
All of these developments have made digital payments synonymous with mobile payments, with the volume of online payments growing rapidly over the past few years, with a massive surge in 2020-21.
Over the five-year forecast period (2022-26), growth will moderate somewhat, mainly owing to a strong base. For example, in China, the report expects annual growth (by volume) of mobile and internet banking transactions to average 6.2% in 2022-26, while Indonesia will experience greater average growth rates of 12%.
Meanwhile, in terms of value of mobile and internet banking transactions, EIU expect annual growth to average about 0.7% in China and 5.6% in Indonesia over the five-year period.
The growth in payments is in line with the forecast for retail sales, with e-commerce sales volumes growing by an annual average of 6.6% in China and 18.3% in Indonesia in 2022-26.
The emergence of smartphone-driven digital payments has spawned growing demand from customers for improved convenience and instant settlement of transactions, including the development of real-time payments.
The deployment of fast-payments systems, as well as the move to standardise QR codes of different digital wallet operators, has also helped more merchants to accept digital payments, which were otherwise costly when executed via cards on point-of-sale (POS) machines.
As a result of rising digital payments, use of cash and traditional cards will come under pressure in the coming years.
According to EIU’s new data series, the total number of ATMs across the world increased by an average of a mere 0.2% between 2018 and 2021, while the number of credit and debit cards went up at a faster pace, of 6.1% and 7.1% respectively.
EIU forecast that growth in ATMs will remain flat during 2022-26, while that of credit and debit cards will moderate to 3% and 3.7%, respectively.
While cards are widely linked to digital payments in established markets such as the US and the EU, the two are increasingly in competition in the Asia-Pacific region, where card use is less embedded.
The report predicts that cards will lose out in this region as digital payments platforms link directly to bank or mobile phone accounts.
Even in card-dominated countries, established companies will have to manoeuvre adroitly to avoid being outflanked by fast-payments systems.
However, as previously predicted last year, one factor in favour of card-linked payments will be additional benefits such as insurance and payback schemes.
In addition, companies such as Mastercard and Visa are already making strategic acquisitions of technology companies to enhance their competitive edge.
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