The world redesigned: digital wallets are revolutionizing the way we pay and where we pay
TAt this time of year, many of us are pulling out our wallets more frequently, but more and more this wallet is digital. Here, we’ll take a look at the rapid pace of innovation in payments as new technologies make payments faster, cheaper, less intrusive, and more secure.
While the two Web 1.0 and Web 2.0 changed civilization in bewildering ways, allowing people all over the world to connect and collaborate, no matter what geography they were materially flawed. They were both content-driven and two layers were missing: an identity layer and a financial layer. The absence of both creates huge cybersecurity challenges.
As we move towards a more decentralized and interactive Web 3.0, new technologies are enabling a digital identity and a layer of financial services that will deliver the speed, agility and a level of convenience that will frequently allow them to operate in the background. Unlike previous technological leaps, developing countries innovate and adopt at a much faster rate than in developed countries, where existing solutions work quite well most of the time. But in developing countries, millions of unbanked people are accessing the global economy for the first time through digital wallets and mobile-based e-commerce, and they’re unencumbered by existing solutions.
The skeptic in you might be wondering how many people have a smartphone that can access these solutions? In 2021, the number of smartphone users increased to 6.4 billion, which represents about 80.6% of the world’s population. By 2026, that number is expected to reach 7.5 billion. In 2020, the smartphone penetration rate in the United States was 81.6%, in Germany 77.9%, China 63.4%, Mexico 54.4%, Brazil 51.4% and India 31.8% .
While smartphone penetration may be higher in developed economies, the digital revolution in emerging economies is already as advanced as in developed economies and is expected to overtake it. In fact, among the top 30 countries in terms of digital service revenues as a percentage of GDP, 16 are from developing countries. Since 2017, digital turnover in emerging countries has been growing at a average annual rate of 26% compared to 11% in developed countries. The reason is that the developed world is full of physical stores, services, and payment options that are familiar and deep-rooted. Why change when what you have is working? In countries where people find it difficult to access any kind of traditional financial service or even a doctor, they are more than happy to try a new digital option that is often much more reliable and certainly more accessible.
But then 2020 arrived. Payments technology was another area where changes that would have taken many years to happen within months, driven by the restrictions linked to the pandemic. These restrictions have sparked an intergenerational shift towards contactless payments and digital currencies. The point is, Covid-19 has created the greatest, previously unimaginable, challenge for cash transactions. Never before and probably never again will such a drastic and rapid change in the dynamics of payments occur, as pandemic restrictions and fear have led to the rapid adoption of online shopping as well as mobile and contactless payments.
So where are we now as we head into 2022? A recent study by Mastercard (MA) found that over 90% of North Americans use technology to manage their money. 82% of North Americans use financial technology to pay their bills, but only 46% use express payment options for online purchases. new financial technology options. In case you were wondering, it’s not just the younger generations, with over 65% of Silent generation and Baby boomers both choose fintech to save time and reduce their workload.
In developed countries, the shift to online spending and the growth of alternative payment methods that use technologies such as biometrics and wearable devices for faster, less disruptive payments are putting pressure on traditional banks and processing institutions. payments. These companies have monopolized the payments world for decades, protecting their relatively high fees by creating barriers to innovation, often aided by well-meaning regulations. Today, they face tremendous pressure from consumers and traders as cheaper and more convenient options emerge.
Payment solutions such as those of PayPal (PYPL), Block (SQ), and Stripe not only reduce the cost of processing payments, but also lower barriers to entry for online and offline commerce. Last week we discussed investing in the designer economy and how the Great Resignation sees more and more people pursuing entrepreneurial options that link their passion to their profession. These technologies effectively reduce the risk of starting a new business by facilitating and reducing the costs of processing payments.
For example, the pandemic has caused retailers to go digital a lot more, but now they (and service providers) need to expand their payment options. Consumers want options that are convenient but also protect them from fraud. the QR Code payment option is increasingly able to take advantage of popular digital wallets already on smartphones. Block (formerly known as Square) now allows businesses to create food and drink menus with a QR code that can be given to customers rather than a physical menu in the US, UK, UK Ireland and Australia. Payment is also possible via these QR codes. Block also offers an e-commerce platform, Square Online, which allows payments through Visa (V), Mastercard, Maestro, American Express (AXP), gift cards, Apple Pay (AAPL), Google Pay (GOOG), and Paypal.
The pandemic has decimated tourism around the world, hurting not only businesses directly in the industry, but also those who benefit tangentially from it, such as restaurants and retailers who previously generated a significant portion of their income from it. to visitors. People had to be creative and quick. This is where companies such as Nuvei Corp (NVEI) came to help them sell across borders, accepting not only foreign currencies but also alternative payment methods, handling much of the burden of complex taxes and regulations. Again, here we see the barriers to global entrepreneurship lowering as the ability to sell to anyone, anywhere, to pay with any method becomes a service rather than an internal ability.
Old-fashioned unattended retail payments have also been incorporated. Unattended payments are things like buying soda from a vending machine, paying at an automated car wash, or Tuesday night at the laundromat. Companies like Cantaloup Inc (CTLP) help businesses sell more by accepting cashless and contactless payments and managing the backend to reduce processing costs.
OG players on the pitch are also adapting. Take Moneygram (MGI), for example, which was founded in 1980 and was recently upgraded to a Zacks Strong Buy based on an upward trend in earnings estimates. The company has undergone a major restructuring over the past decade and in 2019 announced that it was partnering with Ripple to use the XRP digital asset for cross-border remittances. Through a partnership with Coinme, its customers can buy or exchange bitcoin for US dollars in some of its locations.
Mastercard, one of the payment giants founded in 1966, has partnered with Wirex and Pay by bit in 2020 to create crypto cards that allow people to transact using their cryptocurrencies. This year, the company partnered with cryptocurrency exchange LVL to offer a debit card linked to bitcoin and fiat accounts as part of its Starting path Crypto Startup Engagement Program, which is “dedicated to exploring and solving real-world problems for people and businesses around the world using blockchain technology.” Some of the other startups joining the program are Ava Labs, Envel, Kash, and NiftyKey.
The massive adoption of smart mobile devices has accelerated both online shopping and social media. This has led to an evolution of social commerce as social media moves from lead generation to commerce hubs. Social commerce is an online sale that takes place on social media platforms or platforms with a social aspect. Instead of being sent off-platform to the retailer’s online store to complete the purchase, social media platforms are evolving to allow the transaction to go through without ever leaving it. The whole experience, from browsing to payment, takes place on social media. While this is not an evolution in payment technology, it is a change in the payment process and the way retailers can interact with their customers.
Twitter (TWTR) launched a pilot program last July to present products on company profiles. Meta’s Facebook stores allow businesses to connect with potential customers through Messenger, WhatsApp, or Instagram Direct. Its stores allow store owners to import a product catalog or create one on the platform. In February 2021, TikTok launched its University of Sellers as an additional way for users to monetize the platform by selling directly on TikTok.
The bottom line is how we pay, where we pay and with what we pay is changing at an increasing rate. The downside is that change takes effort, but the upside is a world in which the payment process itself becomes more and more fluid. There have never been so many tools to help the aspiring entrepreneur, and for consumers, we are approaching the day when all you need to take with you is your smartphone.
Disclosure: Block, Cantaloupe, Mastercard, Moneygram, Nuvei Corp, Paypal and Visa are components of the Tematica BITA Digital Payments & Fintech Sustainability Index
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.