Such has been the pace of growth since February that PayPal chief executive Dan Schulman recently judged that digital payments have shifted away from being merely a “nice to have” to being an essential part of people’s lives. In the second quarter of 2020, PayPal owned US eWallet firm Venmo (owned by PayPal) saw its total payment volumes jump 20% to US$37bn, its largest-ever quarterly increase since being founded in 2017. Elsewhere Apple’s electronic wallet (eWallet) Apple Pay had been activated on 507m iPhones as of September 2020, up around 15% from 441m in September 2019, with retailer and bank adoption up by 20% year on year according to Loup Venture’s fourth annual Apple pay availability study.
While offline digital payment volumes and transaction values were already growing, their adoption slowed by a lack of supporting infrastructure. Some physical bricks and mortar retailers didn’t see any pressing reason to implement the necessary point of sale (POS) systems to accept cashless payments. However, Coronavirus health concerns have changed that dynamic.
With the emphasis on social distancing and avoidance of touching shared surfaces (including banknotes), there has been a marked acceleration of contactless NFC, RFID and other card emulation technology adoption in mobile payments and contactless terminals in retail premises. That has proved something of a tipping point which has in turn driven increased usage amongst existing mobile payment users whilst simultaneously enticing new people into using the technology. The raising of contactless payment limits in some geographies during the pandemic also played its part in increasing both the volume and value of mobile transactions.
Parallel fall in cash transactions
The massive jump in online and offline digital payments has coincided with parallel falls in cash transactions. Research conducted by YouGov between June and July of 2020 found steep declines in the use of cash across 21 countries. In Thailand, 57% of those surveyed said they had used less cash since the onset of the pandemic, with similar results in Malaysia (53%), Spain (52%) and Vietnam (51%). At the other end of the scale, only 25% of consumers in cash loving USA and Germany (35%) said the same. In comparison, the numbers in Sweden (11%) and China (32%) are attributable to the comparatively high proportion of those country’s population, which had made a switch to digital payments pre-pandemic.
The 2020 McKinsey Global Payments Report published in October has predicted large declines in the use of cash across the globe for 2020. Whereas cash transactions accounted for 99% of the total in China in 2010 for example, that figure is forecast to fall to just 41% in 2020, with similar drops expected for elsewhere in emerging markets such as Malaysia (72% from 93%) and Brazil (74% form 86%). McKinsey also predicts that use of cash, already lower in mature markets, will decline further in 2020: In the Netherlands from 52% in 2010 to 14%, in Japan (down to 54% of total transactions from 79% ten years earlier), and the UK (down to 23% from 51%). In Sweden, the percentage of cash transactions is expected to fall to just 9% from 56%, with some banks in the country have stopped handling cash altogether (the government hopes to become the world’s first cashless society as early as 2023).
Reductions in cash usage are driven in part by government incentives designed to stimulate economic growth and introduce more competition into national banking systems. In Japan, for example, a cashless payment reward system introduced in October 2019 rewards buyers with 2-5% of the value of any purchases they make with small to medium enterprise (SME) retails which do not involve cash.
The Reserve Bank of India (RBI) is also working towards building a cashless society, partly through the licensing of services which use the unified payments interface (UPI) to streamline digital transactions using a single mobile app. In Korea too, open banking regulations introduced a year ago have made it easy for fintechs to compete with banks using a smartphone app that allows access to multiple services, including payments and transfers, though a universal application programming interface (API) to facilitate better data sharing.
Mobile takes a large share of digital payments
The coalescence of these stimuli has prompted various analyst firms to raise their expectations for the growth of digital payments over the next five to seven years. The value of the global payments market is now forecast to increase at a compound annual growth rate (CAGR) of 30% from US$1.5tn in 2019 to over US$12tn by 2027 according to Allied Market Research, driven by increased smartphone penetration and a rise in m-commerce in emerging countries.
Much of that expansion will come from mobile payments specifically as consumers turn to their smartphones to make online and offline purchases of digital goods and services. Mordor Intelligence is now forecasting a CAGR of almost 27% for the mobile payments market between 2020 and 2025. Elsewhere new market estimates from Juniper Research published in December have predicted that the total value of mobile commerce payments will reach US$3.1tn in 2025, up from US$2.1tn in 2020 after a massive boost to eWallet services. The company calculates that the world’s two single largest e-commerce markets will see the lion share of growth in eWallet payments, up 55% in China and 74% in the US during the forecast period.
Further impetus will come from Facebook-owned WhatsApp in emerging economies like India and Brazil. Having been cleared for its commercial debut by the two country’s financial regulatory authorities in late 2020 WhatsApp Pay now enables users to make mobile payments directly for the app which has an estimated two billion users worldwide. Loup Ventures estimates that the mobile segment is demonstrating the fastest growth amongst Apple Pay users, with app usage up 39% year on year in 2020 compared to 22% for desktop and 20% for iOS apps.
As governments across the world implement new lockdown restrictions to limit the spread of Coronavirus further over the Christmas period, many of the world’s consumers will have little choice but to harness their smartphones to do their shopping. This trend will continue well into 2021 and beyond.