Mobile wallets can speed the e-commerce migration in developing markets
Payments digitization and the migration from cash and checks was already a global trend before the COVID-19 pandemic.
In many developed markets, this has been manifested in growing use of cards, including contactless cards in many markets. However, in countries where the use of cards is less prevalent, other digital payment methods, particularly mobile wallets, are proliferating, changing the payments landscape rapidly and radically.
This is a positive step for many reasons. Payments digitization, particularly through the use of mobile wallets, is proven to positively support efforts towards financial inclusion, increase GDP growth and reduce income inequality. Even so, the pace and degree of both technical and cultural change, particularly in emerging markets, can seem daunting.
For example, the use of M-PESA in Kenya, Uganda and Tanzania has transformed the payments culture over the past decade, whereas in West Africa, the movement towards digital wallets started later. This is changing quickly, however. There were 50 million new mobile money accounts set up in Africa in 2019, a 12% increase over 2018, bringing the total to 469 million users. This figure is likely to have jumped further as a result of the crisis, particularly with governments encouraging the shift from cash to digital payments.
Ghana’s central bank announced that citizens could set up mobile wallets without additional documentation to encourage greater adoption, while in Egypt, the government raised the limit for electronic payments to encourage adoption. As in other regions, governments have preferred the use of digital disbursements during the crisis. The government of Togo, for example, has launched Novissi, a payments program to support vulnerable families during the pandemic through mobile channels. These initiatives, resulting from government programs, fintech innovation and changing consumer demand, are resulting in rapid change. In Nigeria, for example, payments via mobile wallets grew by 391% between May 2019 and May 2020 alone.
Likewise, in Asia Pacific, rapid payments innovation, including instant payments and digital wallets, which are often embedded directly into social media and e-commerce platforms or "super apps," is driving huge expansion in digital business models. However, there can be enormous differences between countries, both in the methods available, and the purchasing and payments culture. Singapore is already a mature market for digital payments, including with instant payments, which have also been adopted in Malaysia, Vietnam and Hong Kong. India’s UPI platform has proved transformational in the country, with digital payments increasing from 6.8 billion in 2016 to 28.5 billion in 2019.
With the growth in e-commerce, digital payments, particularly mobile wallets, are becoming ubiquitous; however, these methods are increasingly driving point of sale (POS) transactions. At the end of 2019, mobile wallets in Asia Pacific accounted for 58% of e-commerce payments, followed by cards at 20%. Perhaps more surprisingly, 36% of POS payments were made using digital wallets in Asia Pacific in 2019, and credit/debit cards came in at 33%, both surpassing the use of cash. These figures are likely to have increased significantly since the start of the pandemic.
Middle East has been slower than some regions to modernize its payments systems, but this is changing, with the potential to "leapfrog' legacy technologies. Looking at UAE for example, while cash continues to dominate in POS transactions, the rapid rise of e-commerce is encouraging greater use of cards (29% in 2019) and mobile wallets (19%). Digitization is also accelerating with the introduction of instant payment schemes, which are already live in Bahrain, with Saudi Arabia and recently launched in the UAE.
While digital payments are proliferating across regions, the pace and direction of change, and the digital solutions that emerge, can differ widely. Furthermore, new payment methods rarely replace, but rather supplement existing methods. Consequently, with the exception of pure-play digital natives, treasurers and CFOs expanding the business outside their home market need to understand payment and collection requirements today, what is changing, and the likely future direction.