In recent years, more and more markets globally have been on the journey to payments modernisation. And one of the major drivers behind this is an acceleration in technological innovations and the changing consumer demands that have come with these developments.
People and businesses quite rightly expect to be able to move money in real-time, without any hassle or wait. They want to take the same ‘on-demand’ approach to their finances as they do with so many other aspects of their lives. And central banks and governments recognise the boost this can bring to economies including by reducing shadow economies, supporting businesses with cashflow, and deepening financial inclusion.
In light of this, George Evers, senior vice president, realtime payments Mastercard, shares his thoughts on how consumer demand for digitisation is accelerating payments modernisation.
Changing consumer demands
Often we think of reform as coming from the top down – such as the central banks and governments – but we can also see influences coming from the bottom up in multiple markets around the world, with the rising demand for digital payments driving change and innovation.
Indeed, the volume of global non-cash transactions grew by a compound annual growth rate (CAGR) of 12.7 per cent between 2016 and 2020, underlining this significant shift towards digital payments. Whilst the double-digit volume growth dropped to 7.8 per cent in 2020 due to COVID-19 lockdowns, stifled business activity and reduced spending, it’s anticipated the CAGR will rise to 18.6 per cent between 2020 and 2025.
In Mastercard’s 2021 New Payments Index, 71 per cent of people said they expect to use less cash moving forward and 51 per cent are now more likely to consider a QR-code based payment.
Accenture has also stated that over the next decade, the payments industry expects a total of 2.7 trillion transactions, worth $48trillion, to shift from cash to digital channels. This expected growth rate is undoubtedly fuelled by consumers and businesses demanding digital experiences, similar to what they receive in adjacent industries, as well as the ongoing behaviour change driven by the pandemic. However, it’s crucial that people’s ability to access cash in a convenient way is preserved for those who need or choose to use it and other non-digital payments..
Charting the changing role of cash
According to Boston Consulting Group, the switch to digital payments from cash can boost a country’s annual GDP by as much as three percentage points. But best practice examples of payments modernisation maintain cash as part of the mix.
Sarie, Saudi Arabia’s instant payments system developed through a collaboration between Saudi Payments, Mastercard and IBM, is one such initiative. The progressive project targets achieving 70 per cent of non-cash transactions by 2030, recognising the continued presence and important role of cash.
Meanwhile, the introduction of Swish in Sweden was primarily aimed at reducing the residual amount of cash used by consumers, according to a report by Riksbank. But the reduction of cash has been so successful that the country’s central bank has now undertaken a review, reassessing policies around bank obligations to provide secure access to cash for those who still need it.
Our 2021 New Payments Index mirrored this sentiment, also finding eight in ten (77 per cent) said their preferred payment method changes based on the situation, and the same percentage say they are still likely to use some cash in the next year.
Understanding the payments modernisation opportunity
One of the great benefits of payments modernisation is its ability to go beyond cash and capitalise on the ever-increasing proportion of digital transactions, targeting new use cases and supporting new experiences that offer more accessible and convenient ways to pay.
There’s a clear virtuous circle, whereby payments modernisation improves efficiency and access to payments, helping to grow an economy, which in turn supports more payments.
In newly-digitised economies, payments modernisation can support market developments, ensuring workers are paid efficiently, on time, and can contribute to the economy.
In India, for example, the vast efforts to digitise the country’s payments industry over the last decade have had a massively transformative impact. The shift from cash to digital has become an economic enabler. A report from Oxford University’s Internet Institute found the country now accounts for a quarter of the growing global market for international freelancers.
Markets such as Peru, Indonesia, Pakistan and Vietnam, are all progressing with their own payments modernisation plans. Policy decisions, the use cases targeted, the overlay solutions developed and bank readiness will all play a big part in the success of these initiatives.
But it’s not just the world’s developing markets that have significant growth opportunities. Major economies like Germany and Japan, for example, have non-cash transaction figures significantly below their peers.
These markets have a long-standing affinity for cash, but the question is now whether they will also embrace the benefits of introducing new digital ways to pay to increase volumes and support new use cases – such as adding applications like request to pay – and ensure everyone has the choice to pay and get paid how they want.
If markets don’t simply take a top-down approach, but also listen to the demand from the bottom up, they can ensure payments modernisation works for, and benefits, everyone.