The cashless payment system is growing exponentially with evolving payment methods, increasing use of e-commerce, improved broadband connectivity and the emergence of new technologies. Could increasing cases of cyber-attacks and spam hinder the growth of the online payments market, or will it continue to grow at a rapid pace?
The global digital payments industry is expected to reach the $6.6 trillion mark in 2021, registering about a 40% jump in two years. Cashless payment methods are evolving rapidly with revolutionary innovations such as mobile wallets, mobile peer-to-peer (P2P) payments, real-time payments and cryptocurrencies. In the growing digital age, many payment technology companies are collaborating with traditional financial institutions to cater to the latest consumer and merchant preferences. Thanks to improved broadband connectivity, growing mobile commerce, the emergence of new technologies such as virtual reality, artificial intelligence and rapid digitization, billions of people have started accepting contactless payments in both developed and developing countries. In addition, growing e-commerce businesses, digital money transfers, digital business payments and mobile B2B payments are driving the ecosystem for contactless transactions.
Cross-generational users of cashless transaction methods are widely adopting digital peer-to-peer (P2P) applications as they are more attractive and flexible to use. In-app payments or tap-to-go transactions take seconds at checkout and allow users to make payments anytime, anywhere. Tokenization, encryption, Secure Sockets Layer (SSL), etc. offer multiple ways to secure payments while enabling digital transactions. Also, users don’t have to fill in information every time to complete the checkout process. Thus, online payment gateways play a crucial role in economic growth, enabling commerce in the modern economy. With social distancing rules in place, digital payments have become a must for contactless transactions, not just an alternative to a transaction to prevent the spread of coronavirus.
Digital commerce empowers businesses
Electronic payment systems have become a crucial part of business as consumers’ propensity for online shopping expands. With the expansion of internet penetration, increasing use of smartphones and diverse options for electronic transactions, most consumers prefer online channels to traditional physical stores for shopping. Therefore, businesses are moving online with an electronic payment solution to maximize their profits. Automating the electronic payment system eliminates scope for errors and saves significant time and effort. High standards for fraud detection and prevention in digital transaction systems and AI-based fraud detection protect users from security breaches. By providing the flexibility to make payments through credit/debit cards, mobile money, e-wallet, etc., businesses can expand their customer base. The electronic payment process improves customer satisfaction because customers don’t have to count money or deal with paperwork when they want to make a transaction.
Biometric authentication Improve security
Biometric authentication involves the recognition of biometric features and structural features to confirm an individual’s identity. The verification method may include fingerprint scanning, facial recognition, voice recognition, vein mapping, iris detection, and heart rate analysis. With the increase in identity theft and fraud, biometric authentication has become a reliable and secure alternative for conducting digital transactions. According to a recent study, biometrically verified mobile commerce transactions are expected to account for a whopping 57% of total biometric transactions by 2023. Biometric payment cards are also becoming popular as they support touch payments, allowing users to make faster digital transactions. Digital payment technology provider, Worldline, has partnered with French FinTech, A3BC (Anything Anywhere Anytime Biometric Connection) to protect mobile phones from intrusion with a two-factor authentication process. The combined solution eliminates one-touch identification, but rather recognizes fingerprints through a photo of the hand. MasterCard plans to introduce FinGo’s vein-scanning payment solution, which makes it easier for users to authenticate transactions.
Dominance of mobile wallets
In 2019, mobile wallets overtook credit cards to become the most widely used form of payment globally. Digital wallets offer consumers the flexibility to store multiple payment methods in one digital home and convert cash into electronic money needed for online or in-store purchases. Financial institutions have already started to embrace the digital wallet trend by offering virtual cards to business customers. Virtual cards stored in digital wallets consist of details such as 16-digit card number, CVV code, expiry date and work just like the physical plastic card. Currently, only 37% of merchants support mobile payments at the point of sale, but with increasing adoption, merchants are willing to invest in technologies that facilitate digital wallets. Virtual wallets can save money due to low processing costs as they limit the values and frequency of transactions. Artificial intelligence (AI) enhances the user experience in terms of transactions with ChatBots designed to perform and robotize basic exchanges according to the user’s interests. In addition, e-wallets based on cryptographic money are being adopted by start-ups to small and medium-sized organizations to store digital money. Smart voice technology has contributed to the growth of smart voice wallets since Amazon pioneered the principle of this platform, which is now being followed by Google and Apple.
E-commerce boom accelerating growth of digital payments market
The growth of e-commerce at an exponential rate is creating shock waves and a sonic boom reverberating through the financial technology sector. The growth of many e-commerce companies is driven by the type of financial services they provide. Digital transactions make it easier for the buyer and seller to transact and stay loyal to the marketplace. The COVID-19 pandemic has added a different dimension to e-commerce innovation, introducing newer trends such as cashier payment alternatives (not with digital wallets), virtual cards, QR codes and other contactless transactions. Also, the Buy Now Pay Later (BNPL) trend is dominating the e-commerce industry as it eases the financial burden on the buyer. BNPL includes a soft credit check so users can buy what they need, keep inventory moving and pay overtime without affecting their credit score. BNPL provides businesses with much needed liquidity and greater cash flow flexibility.
Impact of the COVID-19 pandemic on the growth of the digital payments market
Digital payment systems have moved beyond their peer-to-peer (P2P) transfers and bill payments. The COVID-19 pandemic has allowed digital payment systems to showcase their strengths, such as a strong understanding of hyper-local markets and their ability to establish strong local partnerships. Businesses and consumers have increasingly gone “digital” to provide and purchase goods and services online. When the pandemic hit, people didn’t want to touch or exchange cash because of the paranoia of catching the infection from physical currencies. Several governments around the world have introduced digital financial transfers to provide COVID-19 relief. Thanks to the lockdown measures, consumers have turned to online platforms, catapulting the demand for digital payment systems. Digital platforms have now become an essential component of people’s lives, and consumers are more likely to continue shopping online in the post-pandemic period. The dramatic change in consumer behavior is likely to further increase the demand for electronic payment systems. That is why companies are turning their attention to digital media to meet new customer demands and thrive in the changing market scenario. Organizations are reimagining customer journeys to reduce friction and provide new security features. Payments companies like PayPal and Square Cash are recruiting across the board to better understand the reshaping of societal norms and stabilize businesses for the near future.
Electronic payment systems are the future
With the increasing penetration of smartphones and the Internet, consumers are becoming technologically savvy, which provides endless opportunities for digital payment markets. Post-pandemic, digital payment systems are expected to continue to flourish in the coming years. While cards remain the first choice for payments worldwide, mobile wallets are rapidly gaining popularity. Traditional cash flow is decreasing at bank branches and ATMs, demonstrating a move towards a cashless society. China currently dominates global mobile wallet consumption, followed by South Korea. However, there are still many countries that are highly dependent on cash due to lack of trust in financial institutions and lack of proper broadband infrastructure, etc. In the near future, social media-initiated payments, biometric payments, voice-activated payments are likely to become mainstream in developing countries as well.
Cybersecurity and privacy issues with online payment solutions
Threats to cyber security and privacy have become an alarming concern with increasing cases of online fraud. According to the Mastercard study, one in four consumers experienced some kind of fraud in 2020, which increased the rate of cybercrime by 49%. In the first half of 2020, online fraud increased by 73.8% compared to 2019. However, adopting new-age technologies such as multi-factor authentication, biometrics, 3D security, artificial intelligence and machine learning can help control fraudulent activities such as phishing, virus attacks, etc. The move to contactless cards, QR codes and tokenization can also help mitigate the risks associated with digital payment solutions. Additionally, increasing end-user awareness about the secure implementation of e-payment solutions by increasing financial literacy efforts can help prevent fraud. The emergence of mobile commerce and the evolution of electronic payment platforms, supported by robust security solutions, can help achieve the goal of a truly cashless economy.