The pandemic affected business as usual in all sectors. But in the payments industry, business hasn’t been usual for years. So, when lockdowns, supply chain interruptions, and economic uncertainty consumed much of our thinking for nearly 18 months, the already-dynamic payments ecosystem offered a perfect storm for multidimensional disruption.
According to the latest World Payments Report, well before 2020, consumers and commercial clients were already clamouring for digital experiences similar to what they had come to expect from other service providers. Then, COVID-19 infused urgency into demands for convenient omnichannel payment services.
As the crisis escalated, PayTechs and industry newcomers responded with novel business approaches and innovative people-focused offerings that boosted customer experience (CX), intensified disintermediation, and hit payment service provider profits.
Double-digit growth of non-cash transaction volumes increased merely 8% in 2020
The unrelenting double-digit volume growth within the global non-cash payments industry came to a screeching halt in 2020, succumbing to COVID-19 lockdowns, stifled business activity, and reduced spending. The pandemic upended nearly every aspect of life, and consumer spending was no exception.
Globally, governments and central banks distributed $15 trillion in economic stimulus packages by May 2020, but relief plans failed to boost spending and, instead, spurred savings and debt payments.
According to the World Payments Report, Consumers, spooked by speculative market conditions and employment uncertainty, kept their wallets shut. As a result, private consumer expenditure (PCE) in the EU declined by 4.1% in Q1 2020 compared to Q4 2019.
The downward slide continued in Q2 2020 at 12%. As pandemic constraints abated during the warmer months, Luxembourg, Ireland, Malta, Slovenia, and Spain recorded a 20% quarter-on-quarter increase.
Despite significant Q3 2020 increases, spending in almost all countries nevertheless remained below the pre- crisis level. In emerging market India, subsequent pandemic waves prevailed, and business activity fell nearly 25%.
Conversely, customers saved a whopping $5.4 trillion during 2020. North America and Europe − where lockdowns and government support had a significant impact − topped the consumer savings list.
Global non-cash transaction growth decelerated to 7.8% in 2020 (close to the 8.1% we predicted last year), down from 16.5% in 2019. Advanced economies will continue to be affected as GDP levels are expected to remain ≈3% to 4% below their pre-virus trend paths until 2025. A year of growth is needed to tread the recovery path.
Rising customer adoption, new payments methods, and increased spending
Despite COVID-19 continuing to cast shadows, 2021 appears poised for a rebound.
After a 3.5% contraction in 2020, global GDP is projected to rise − 5.6% in 2021 and 4.3% in 2022 − before settling in to a 3.0% 2023–25 growth pace, primarily driven by robust recoveries in matured economies.
Consumers are expected to spend nearly a third of their 2020–21 savings as vaccinations advance, markets ease restrictions, planes and hotels begin to see tourists and business travellers again, and shopper confidence builds. The result may be a global spending boom focused on services, travel, and leisure.
An unprecedented need for faster payments, business-to-business (B2B) e-commerce, and cross-border transactions is fuelling modernization initiatives and is on track to accelerate B2B payments.
Global non-cash transactions to reach 1.8 trillion by 2025
Non-cash transactions are set to grow worldwide at pre-pandemic levels by 2021 and beyond, sparked by the spending boom and rapid adoption of digital payments. The 1 trillion transaction landmark may be reached by 2022, beating our 2020 estimates by a year.
Global non-cash transactions are poised to grow at 18.6% CAGR (2020–2025F) and are projected to reach 1.8 trillion in volume by the end of the World Payments Report forecast period.
The burgeoning e-commerce segment (~20% CAGR, 2020–25), mobile payments (~30% CAGR, 2020–27), and digital wallets (~15% CAGR, 2020–26) will be pivotal drivers of non-cash payment volumes.
APAC is on track to represent more than half of global non-cash transactions by 2025, with a noteworthy 28% CAGR from 2020–25.
The fact that 46% of APAC’s online population regularly uses digital wallets is likely to drive digital payments growth.67 APAC is a frontrunner in the race to a cashless world.
In 2020, the region accounted for 45% of total globally registered mobile money accounts − the highest among all markets.
This trend is set to grow as more initiatives encourage mobile payments across the region. PayNow in Singapore, Faster Payment System (FPS) in Hong Kong, PromptPay in Thailand, and New Payments Platform (NPP) in Australia have made instantaneous fund transfers between individuals and merchants possible.
In Europe, World Payments Report project mobile payments and cross-border e-commerce to ramp up and drive the region beyond 400 billion transactions in 2025 at a CAGR of 13% (2020–25F).
More than half a billion Europeans say they will shop online in 2021, where cross-border represents 25.5% of the total. North America is predicted to stabilise non-cash payments volumes due to plateaued card transaction growth and slow mobile payments adoption.
In the Middle East and Africa (MEA), e-commerce and digital payments are bound for significant growth in 2021 and beyond.
Nearly 75% of MEA consumers say they shop online more since the pandemic, and 95% are considering the use of emerging payment instruments such as wearables, biometrics, and digital wallets.
Latin America is one of the fastest-growing mobile markets globally. However, nearly 70% of its population is underbanked, which means the environment is favourable for mobile payments growth.
Flourishing FinTech and challenger bank ecosystems play a vital role in driving LATAM digital payment adoption, especially among the young and tech-savvy, to close the region’s financial inclusion gap.
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