Payments are increasingly becoming cashless and, as digital money draws stronger interest, the financial services industry must recognise the entire infrastructure of payments is being reshaped, with new business models emerging, advisory multinational PwC says.
Given the key role digitisation plays in the financial lives of more of the world’s population, electronic payments are at the epicentre of this transformation, and the financial services industry’s role in fostering inclusion has become a significant priority, the firm states.
The financial services industry is in the midst of a significant transformation, accelerated by the Covid-19 pandemic. Global cashless payment volumes are set to almost double from 2020 to 2025, from about one-trillion transactions a year to about 1.9-trillion transactions a year.
By 2030, the number of cashless transactions per capita will be about triple the current level, reaching an expected more than three-trillion transactions a year.
PwC’s 'Payments 2025 & beyond' report and survey reveals how, even before the Covid-19 pandemic, cashless payments, including sending a text to pay for a bus ticket in Turkey or using a quantity-recognition code to buy groceries in China, provided evidence of a steady shift to a digital economy; a shift that might ultimately lead to a global cashless society.
“A cashless world is in plain sight. The Covid-19 pandemic reinforced an already growing shift to digital payments and likely drove a three- to five-year acceleration in their use.
"The acceleration towards digital payments will create new opportunities for the entire payment ecosystem, including banks. But it will also expose weaknesses for those not prepared to adapt,” says PwC Global Banking and Capital Markets leader Kurtis Babczenko.
“As an emerging market, unencumbered by large amounts of legacy technology, South Africa has the potential to develop a modern payments infrastructure and a cutting-edge payment platform that places customers at the core,” adds PwC Strategy& Payments Transformation Africa leader Chantal Maritz.
“Covid-19 is a catalyst for change. We have seen the rapid deployment of payment services across Africa.
"Current market conditions have given rise to the need for more financial inclusion, as well as greater innovation and collaboration among financial services players,” she points out.
In developing countries, financial inclusion will continue to be driven by mobile devices and access to affordable, convenient payment mechanisms. By 2025, smartphone penetration will reach about 80% globally, largely through the uptake in emerging markets, the report shows.
“In Africa, mobile operators and retailers are taking the lead in equipping customers with cashless means of payment. They are also playing a key role in bringing about financial inclusion and trust in digital payments.
"In addition, regulators are stepping in to drive financial inclusion. It is also being strengthened by the need of many African migrant workers to send money home via affordable cross-border payments.”
Central Bank Digital Currencies (CBDCs) are predicted to have the biggest disruptive impact over the next 20 years, notes PwC.
South Africa has embarked on its second CBDC project to explore the use of a wholesale CBDC and wholesale settlement tokens for interbank use.
Meanwhile, senior payment professionals surveyed expect important regional developments towards a payment infrastructure in which card and other transactions run on joint account-based payment rails. Key initiatives in Latin America, South-East Asia and Europe reinforce this development.
In Africa, account-to-account credit transfers are likely to continue growing given enhancements to the national clearing infrastructure focusing on low-value, high-volume payments such as the Rapid Payments Programme (RPP) in South Africa. Ghana, Nigeria and Kenya have also introduced instant payment solutions.
“Eighty-six per cent of our survey respondents agreed or strongly agreed with the prediction that traditional payment providers will collaborate with financial technology companies (fintechs) and technology providers as a main source of innovation.”
Alternative closed-loop systems, such as electronic money and telecommunications provider-led mobile money solutions, will continue to dominate a large proportion of the African continent, especially sub-Saharan Africa, owing to the foothold mobile money agent networks have already established.
This trend will persist, with more financial-services offerings built on top, says Maritz.
Meanwhile, security, compliance and data privacy risks and related issues were the top concern for banks, fintechs and asset managers in implementing a fully integrated technology strategy, says Babczenko.
“Aside from this shift to a cashless society, we need to also pay attention to a more profound change. Consumers are using traditional ways of paying for goods and services less, including the paper check and analogue invoices, and the entire infrastructure of payments is being reshaped.
“That reshaping involves two parallel trends, namely an evolution of the front- and back-end parts of the payment system, including instant payments, bill payments and request to pay, as well as plastic cards and digital wallets, and a revolution involving structural changes to the payment mix and ecosystem, including the emergence of so-called buy now, pay later offerings, cryptocurrencies and work underway on CBDCs,” he adds.