The financial services sector has been steadily adapting to digital disruption over the last few years. But the COVID-19 pandemic has accelerated that requirement by opening up access to digital banking for millions of unbanked consumers around the world for the first time.
In Norway the deputy governor of Norges Banks was reported to have observed that just 4% of payments use physical currency, considerably lower than before the pandemic. And the direct impact of that trend can be seen in a surge in downloads and usage of mobile payment apps as tracked by app intelligence firm Apptopia.
The company’s Mobile Finance Report 2020, sponsored by marketing firm Adjust, recorded installation and session rates for a broad range of fintech apps over the first half of 2020, based on data from Brazil, Germany, Japan, Russia, Turkey, Ukraine, the UK and the US.
The research calculated that the number of sessions being spent in smartphone payment apps increased by 49% between January and June this year for example, with much faster rates of growth noted in Japan (75%) compared to Germany (45%), Turkey (39%), the US (33%) and the UK (29%).
App installs reinforce consumer adoption patterns
App installs indicate a similar pattern of usage, with Japan seeing a massive 76% increase in payment app installations during the first half of 2020, considerably more than Brazil (52%), the US (20%), the UK (18%), Argentina (15%) and Germany and Turkey (5%). However, Russia (down 6%) and Ukraine (down 2%) saw year on year decrease in the volume of payment app installations.
Despite considerable enthusiasm for alternative forms of mobile payment, notably direct carrier billing (DCB), compared to other countries, Japan has not embraced mobile payments apps in the same way. That started to change in October 2019 when the Japanese government introduced a cashless payment reward system that repays buyers 2-5% of the value of any purchases they make with small to medium enterprise (SME) retailers which do not involve cash.
Another government incentive in Russia had the opposite effect on mobile payment app downloads, however. The widespread adoption of the Faster Payment System (FPS) launched by the Central Bank of the Russian Federation in 2019 enables instant P2P transfers between different banks using personal identifiers like a mobile number or QR codes, with additional support for payments and government benefits disbursements.
eWallet and super app usage on the rise
Apptopia’s findings coincide with a recent Business Insider study – State of Mobile Banking in 2020 – which found more than half (56%) of credit unions surveyed in the US had seen an increase in the mobile or electronic wallet (eWallet) adoption and transactions (53%), primarily driven by the growth of e-commerce and online purchasing in the first half of 2020.
Data published by Buy Shares UK citing Statista analysis has forecast that the value of the eWallet payments on a global basis will now increase by 50% to be worth US$1.5 trillion in 2020, a considerable jump on previous forecasts of US$1tn. Consumer research conducted by Paysafe Insights also noted a surge in the popularity of digital wallets, with 15% of consumers using this payment method for the first time since the outbreak of COVID-19. Those figures were higher in Bulgaria (26%), Italy (20%) and the US (18%) specifically than in other countries such as Germany (13%), the UK (12%) and Canada (10%).
The popularity of the so-called “super app” – which offers multiple functions such as messaging, social media, gaming, file sharing and mobile payments within a single interface – is also driving up overall payment app usage. Super apps first emerged in Asia with Tencent’s WeChat and Alibaba’s AliPay in China and KakaoTalk in South Korea, services which together have signed up almost 2bn users between them.
Other providers are now following suit with super apps of their own, some of which are more tightly focussed to fintech capabilities. They include UK fintech Revolut, which provides a range of banking services including payment cards, currency exchange and person to person (P2P) payments. The company has raised more than £700m of funding to date and had an estimated 12m users as of June 2020, a number forecast to proliferate after Revolut integrated Google Pay into its app for customers in Austria, Bulgaria, Estonia, Hungary, Latvia, Lithuania, the Netherlands, Portugal and Romania last month [November 2020].
App launches slow down in 2020
The growth in the use of payment apps has been achieved despite, or perhaps because of, a slowdown in new apps introduced this year after a bumper year for new market entrants in 2019 concludes Apptopia. Its data suggests that there was a 71% drop in the number of banking and payment apps which debuted in the first half of 2020 compared to the equivalent period of 2019. Of all the territories surveyed only the US continued any form of growth pattern, registering a 10% increase in the number of Apple iOS-based apps launched (though new Android apps declined markedly).
On a global basis, though, consumers that download and install Android-based payment apps tend to register slightly more sessions that those with Apple devices after an initial 30 day period. That’s especially true for those that install apps through a paid-for distribution channel rather than via organic downloads relying on word of mouth.
Interestingly the onset of the COVID-19 precipitated a marked drop in acquisition costs for payment app providers. Effective costs per install fell 77% between January and May 2020, dropping 56% between March and April alone estimates Apptopia. ECPI is calculated by dividing advertisement spend by the number of new app installations over the same period, suggesting that developers had to invest less in attracting new customers and are seeing much better acquisition rates for their marketing efforts. That said, users of payments apps also seem willing to churn suggesting they either use the app to solve individual problems and require some persuasion to stay or make payments via the app too infrequently for them to keep using it.
Digital switch coming sooner rather than later
Despite the lack of new market entrants and high customer churn rates, mobile app subscriber numbers and total transaction value are still predicted to grow in 2020. Even pre-pandemic separate research compiled by eMarketer forecast that over a billion people would make a proximity-based mobile payment at an in-store point of sale (POS) terminal in 2020, equating to over 38% of all smartphone users.
At that time eMarketer concluded that expanding use of other forms of contactless payments (debit and credit cards for example) was likely to limit growth, as would a lack of suitable POS infrastructure, privacy and security concerns and large unbanked populations in emerging markets. The onset of Coronavirus has changed that dynamic to a certain extent, not least by pushing consumers and merchants to change their strategy and preferences for contactless payments sooner rather than later.
[i] Cash payments plummet to just four percent of transactions in Norway, Finextra, 10th November 2020
[ii] Mobile wallet payments to surge by 50 percent in 2020, The Paypers, 3rd June 2020
[iii] How COVID-19 is impacting consumer payment preferences, Paysafe Insights, 4th May 2020
[iv] Global Mobile Payment Users 2019, eMarketer, 24th October 2019