Poor payment infrastructure is just as threatening as aging transportation

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Infrastructure makes global commerce possible. But while some countries are upgrading their physical infrastructure, many others — including economic powerhouses like the U.S. — suffer from aging roads and outdated transportation networks.

However, today’s global citizens face risks that extend far beyond crumbling highways. Although reliable physical infrastructure is necessary for economic growth, immature and anemic payment infrastructures may present another serious threat to the global economy.

Our research evaluated 209 countries across several key indicators, revealing a wide divergence in payment infrastructure, splitting countries into several categories based on their payment infrastructure capabilities: established countries with a high level of marketplace activity and rapid-growth platforms; emerging countries that exhibit some but not necessarily all of the strengths reported by established countries; and evolving countries with less-than-ideal payment infrastructures.
Evolving countries exhibit weak payments infrastructure relative to other markets and pose significant challenges for expansion. They currently struggle with a variety of payments-related challenges.

Personal banking plays an important role in consumers’ ability to participate in online and sharing economies. But in many evolving countries, unbanked or underbanked consumers represent a sizable share of the population.

For example, the World Bank estimates 63% of Mexican adults lack a bank account and the country reports there are only 14 bank branches per 100,000 inhabitants. In Mexico and other evolving countries, unbanked and underbanked populations present serious barriers for e-commerce providers and companies that typically avoid cash payments.

For e-commerce and sharing economy providers to thrive in countries with large unbanked populations, it may be necessary to explore alternative payment models like cash-on-delivery. However, it should be noted that cash-on-delivery and similar payment methods may present additional challenges related to security, dispute settlement and other issues.

In addition to selling to a large number of unbanked/underbanked consumers, companies that do business in evolving countries may also be forced to contend with digital payment environments that are still in their infancy.

Although the sharing economy is currently driving phenomenal growth in the Malaysian economy, just 26% of Malaysian companies offer mobile payment options — a mainstay of the sharing economy ecosystem. In other instances, government entities may need to rethink their approach to digital marketplaces to make it easier for digital payment platforms to gain traction.

With both security and the efficient flow of goods and services at stake, a lack of payments infrastructure combined with the demands of the sharing economy and e-commerce sectors presents challenges that public and private sector interests must collaboratively resolve in evolving countries.

Regulatory concerns exist across geographies — they present hurdles for businesses operating in any country. But regulatory environments can prove even more daunting in evolving countries.

In Thailand, online channels are struggling to adapt to alternative payment methods like cash-on-delivery and regulatory issues are impacting forward progress in the payment arena. The country’s “Thailand 4.0” digital economy strategy recognizes the importance of the platform economy and has the potential to help overcome payment-related challenges for gig workers and sharing economy participants across the nation.

Still, many countries in the early stages of digital transformation lack robust digital governance frameworks and defined regulations. Although governments in evolving countries sometimes embrace the potential of new economic models, evolving or confusing regulations can jeopardize companies’ future plans.

Evolving countries hold promise, especially for first movers. The sharing and service-based economies offer significant (and growing) potential for firms expanding internationally as well as indigenous entrepreneurs.

However, infrastructure issues remain a concern. Across categories, all countries must invest in physical infrastructure to ensure the steady flow of supplies and merchandise. But evolving countries are falling behind in payments infrastructure and must adapt to keep pace with the evolution of emerging economic models.

As evolving countries struggle to modernize their payments infrastructures, it is important for the private sector to participate in the process. Specifically, companies as well as consumers will need to continue to push for positive reforms that pave the way for improved payment infrastructure and more robust digital payment capabilities in marketplaces around the world.

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