The way we pay for things is undergoing a huge digital transformation, a process that’s only been hastened by the coronavirus crisis. With most countries under lockdown during the pandemic, more people than ever avoid using cash and physical bank cards, instead favoring digital payment methods such as instant payments and digital wallets.
Beyond this evolution of the front and back-end components of payment systems, we’re seeing a much more profound change, with a radical transformation of the entire payment infrastructure also taking place. This includes the development and proliferation of digital currencies and near-instantaneous cross-border payments.
Both the evolution and revolution in payment digitization are picking up steam across the world, but in contrasting ways and at varying paces. Here’s what the future might hold for payment digitization
As the name suggests, instant payments (otherwise known as real-time payments) refer to those that take place immediately, rather than the standard one to three business days. As well as offering greater speed, real-time payment networks also provide improved financial control, cash positioning and liquidity management. They are distinct from push payments, which, despite being faster than traditional payments, don’t happen instantaneously.
Instant payments accounted for 14.5% of global non-cash payments in 2020, and this is expected to rise to 25% by 2025. In 2014, only 14 countries could facilitate such payments. This number had quadrupled to 56 by 2021, with the likes of the US, Australia and Russia implementing domestic instant payment networks in that period. With greater demand for quicker and more accessible payments than ever, expect instant payments to become a growing feature of modern life.
Digital wallets enable users to load and store payment methods and access funds (via sources like cards and accounts) through their mobile devices. Touted for their speed, efficiency and security, digital wallets are becoming increasingly widespread, as epitomized by the prominence of solutions like Apple Pay, Google Pay and WeChat Pay and Alipay in China. Overall, the digital wallet market was worth $150 billion in 2020, and is only expected to grow in the future, reaching a value of $400 billion by 2027.
This rise in value can be pre-empted by the number of banks and card companies partnering with or investing in digital wallet providers in recent times. Examples include Standard Chartered bank’s venture with mobile wallet provider Toss, and Mega Bank Nepal’s partnership with FOCUSEONE Payment Solutions and its digital wallet MOCO.
Request to Pay (or Request for Payment in the US, Collect in India and E-Mandate in other parts of Asia) is a form of “pull payment”, meaning it’s initiated by the payee. This allows them to request a payment from the payer using their mobile device, typically on a banking or third-party fintech app. The payer can then either approve or reject this, with money automatically sent to the payee upon approval.
It was launched in the UK in June 2020 and the rest of Europe in November 2020, while it has also gone live in countries like the US, India and Malaysia. Don’t be surprised to see more countries follow suit in the future.
Buy Now, Pay Later (BNPL) has become one of the popular online financing options in recent years, allowing you to buy something and pay for it later on (either in full or instalments), with no interest or short-term financing. With the sellers getting paid in full and the buyers receiving the item as normal with seemingly no strings attached, it appears a win-win situation for all involved. However, BNPL has been criticized for being unregulated and encouraging people to spend more than they can afford.
Nonetheless, the financing option looks poised to shake up the payments industry for good. It is currently the fastest-growing way to pay for things in the developed world, with the likes of PayPal, CitiBank and American Express launching their own BNPL options in recent times. Consequently, the BNPL sector is predicted to be worth $20.4 billion by 2028, a compound annual growth rate of 22.4% from 2021.
Although cryptocurrencies and other types of digital currencies have been around for some time now, they’ve only just started to permeate into the mainstream. But with the world’s largest financial institutions introducing crypto-related services (including the likes of Goldman Sachs, CitiBank and Morgan Stanley) and various countries rolling out digital currencies (such as China, Nigeria and the Bahamas), it won’t be long before they’re universally used.
Offering benefits like faster transaction times, added security and cheaper transaction costs, the spread of digital currencies is revolutionary in that it could hugely curtail the influence of and need for central banks. With people and businesses able to hold money securely on decentralized blockchains, there would be little need for them to hold a bank account. This explains why so many countries are eager to develop their own digital currencies.
Unlike with domestic transfers, most banks don’t have direct relationships with other banks overseas, making international payments for businesses and individuals more difficult. As such, banks have to use intermediaries (called correspondent banks) in order to make cross-border payments, who undertake tasks such as dealing with exchange rates, checking the information of the two parties and ensuring they adhere to the relevant countries’ laws. Unfortunately, this can cause massive delays to cross-border payments.
However, with international payment providers like Inpay, it’s now possible for businesses, banks and other financial institutions to make fast, easy and low-cost cross border transactions, meaning they can offer more to their customers.
Because Inpay has direct access to domestic clearing channels, we cam rapidly reach your recipient's end country without using any intermediaries, saving time and money. What’s more, we negotiate a favorable foreign exchange rate with our local providers, further reducing costs. With no need to use a central bank either and the close screening of all payments, we make cross-border payments more transparent and accessible too.
Learn more about our solutions below, and don’t hesitate to contact us if you have any queries.
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