Digital payments surge at the expense of cards and cash

May 26, 2021

Jonathan Bennett, Chief Commercial Officer

Jonathan Bennett

Chief Commercial Officer

The Commonwealth Bank of Australia (CBA) expects that digital wallets will become the most popular method of in-store contactless payments in the country by the end of 2021. And that trend is being mirrored in other parts of the world as people turn away from their credit and debit cards in favour of smartphone app-based transactions.

The CBA calculates that the number of monthly digital wallet transactions in Australia increased 90% from 36m to 68m between March 2020 and March 2021, with transaction values more than doubling from AUS$1bn to AUS$2.1bn[i]. As of March 2021, 40% of the CBA’s combined debit and credit card transaction count was via a digital wallet, a percentage the CBA now expects will exceed 50% by the end of 2021.

Australian consumers have embraced vendor-led or “open” electronic wallets (eWallets) like Google Pay, Samsung Pay, Apple Pay, Fitbit Pay, and Garmin Pay, as well as those provided by banks themselves CBA’s own tap-and-pay proposition. They have also started to make higher-value purchases using those eWallets, most commonly for everyday expenses, including public transport tickets, groceries, food and beverages, retail shopping and petrol. Average transaction values increased from AUS$41 to AU$44 for sales linked to credit cards and AUS$26 to AUS$29 for debit cards in the twelve months to March 2021.

Trends in other countries mirror that growth and demonstrate even more robust expansion in digital wallet usage. FIS Worldpay’s 2021 Global Payments Report concludes that 2020 catapulted digital payments years ahead of former projections in tandem with the explosion of eCommerce and mCommerce. The company estimates that digital wallets accounted for 44.5% of all eCommerce transactions by volume in 2020, up 6.5% over 2019. In China, the number is over 72%, whilst the US, traditionally dominated by a preference for plastic card payment methods, saw the volume of its eCommerce transactions funded by digital wallets jump by almost 24% in one year to reach 29.8% of the total.


Plastic cards heading the same way as cash

If the volume and value of eWallet transactions continue to rise, it could be plastic cards that now start to disappear from the market as well as cash. FIS Worldplay estimates that cash transaction values at the point of sale (POS) in physical stores fell steeply around the world in 2020, for example: by 21.9% in North America, 33.6% in Europe, 34.7% in Latin America and 36.6% in APAC.

The pandemic has undoubtedly played a significant role in accelerating that transition, as people avoided forms of payment that involved handling coins or notes or touching shared surfaces like card readers involving PIN entry. In some cases, in-store merchants stopped accepting cash altogether due to fears of coronavirus transmission.

Improved cyber, as well as biometric security, may have also aided eWallet adoption. Many smartphones now feature embedded biometric authentication mechanisms like fingerprint readers or facial recognition technology, making the financial details stored on them less easy to steal or lose than cash or plastic cards. The closure of physical retail premises and reduced capacity due to social distancing requirements also forced more people to shop online. Many of them ultimately did so using their smartphones and found eWallets the most convenient way of funding their purchases.


Future expansion off the charts

Nor is there likely to be any reversal of those trends over the next four to five years. Analysts predict that digital payments will expand further to account for an even larger share of both POS and eCommerce transactions as the use of cash and cards continues to decline.

In its latest Digital Wallets: Key Opportunities, Vendor Analysis and Market Forecasts 2021-2025 report, Juniper Research forecasts that the value of global eWallet transactions will exceed US$10tn by 2025, up from US$5.5tn in 2020.

Finance and investment company Finaria estimates the mobile wallet industry will grow to US$2.4tn in 2021 and US$3.5tn by 2023.[ii] It too recognises that Asian countries, especially China, are leading the way but estimates that the US is now the second-largest global market worth US$465bn in 2021 and set to grow by 49% to US$698bn by 2023. FIS Worldplay estimates that digital wallets will account for almost 52% of global eCommerce payment volumes by 2024, whereas those funded by credit and debit cards are likely to decline. The company also projects that cash will decrease an additional 38% from 2020 to represent just 12.7% of global POS volumes by 2024.

Juniper credits one reason for that expansion: their increasing use for remote online payments and contactless transactions in physical stores. But another is the rising penetration of affordable smartphones, particularly in emerging economies, with integrated mobile payment technologies such as near field communications (NFC). As a result, Juniper expects that over 34% of mobile handsets will have some form of embedded contactless payment capability by 2025, up from 11% in 2020.

Digital wallets are also likely to benefit from the rollout of the Strong Customer Authentication (SCA) regulation in Europe during 2021, given that smartphones often meet the new multi-factor authentication (MFA) rules by default.


Merchants embracing mobile POS infrastructure and billing platforms

Delivering a more seamless transaction experience for the customer should also help merchants improve conversion rates, more so when a single app enables and tracks both online and in-store purchases. Growing numbers of retailers are coming to recognise this customer preference. They are now implementing or upgrading their online billing platforms and in-store mobile point of sale (POS) terminals to accept eWallet payments.

Setting up the necessary infrastructure doesn’t always come naturally, though, especially among smaller businesses (SMBs) with little in-house expertise hit hardest by the pandemic. Many could benefit from the help of third-party payment service providers like DOCOMO Digital to select, implement and manage the required mobile payments technology and back-end integration on their behalf, leaving them to concentrate on growing their sales.


[i] CBA predicts digital wallets set to become the most popular contactless way to pay, CBA, 19th May 2021

[ii] Mobile wallet industry to reach $3.5 trillion by 2023: report, Retail Dive, 12th March 2021

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