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Propelled by the shift in consumer behavior boosted by the pandemic, our adoption of contactless and digital payments has accelerated economic change in tangible ways, offering improved traceability, accessibility and security both at home and in developing countries far and wide. The market conditions have further been propelled by expanded access to mobile devices. With a majority of the world’s population having a smartphone today — 86.41% according to Statista in 2022 — this further enables the rise in digital payments globally, which is expected to compound annually at about 15% in emerging markets through 2026.
This democratization of payments from traditional financial institutions to telecoms, merchants, fintechs, global brands and more, has enabled the explosion of the Embedded Finance model and a compound effect on customer financial interactions throughout their digital experience.
Building up economies and powering up new business
One of the positive externalities of the pandemic is that people are more comfortable than ever making purchases online, whether it’s clothing, consumables or groceries. This willingness to interact in the digital space is no longer limited to the younger generations. Purchasing power is no longer relegated to millennials and Gen Z; it transcends age. It’s not uncommon to see the older generation making payments online, including my 84-year-old father.
As a result of the pandemic, the adoption of digital habits was born out of pure necessity. Today, these habits remain sewn throughout our lives due to their sheer convenience. However, in developing countries, the rapid advancements of fintech payments have done more than make life easier — it’s directly contributed to quality of life, empowerment, human safety and policy enforcement, where the shift from cash to digital payments is still in its infancy.
The acceleration from physical to digital payments will create new digital economies and interactions between sellers and consumers on a local and global scale.
On a recent trip to India, I witnessed first-hand a part of the world’s digital transformation. Having last visited India two years before the pandemic, I was expecting to see little change. This time, however, I found myself standing inside a small, local flower shop that had previously accepted only cash. Today, digital payments have modernized it. Instead of promoting “cash only” signs, most shops I went into now presented me with QR codes and app-based payment options. The flower shop wasn’t any different — but now, it has a sign directing customers to pay by app.
In a few years, India’s economy has been transformed by going cashless (a.k.a. the shift to digital), and they aren’t the only ones. Iteratively, developing countries worldwide have inched their way into digital payments, slowly transforming gray economies with vast income disparity into more transparent, traceable and manageable ecosystems. A symbiotic relationship has developed between the private and public markets, enabling competition, economic growth and choice for consumers while driving traceability and accountability for governments and regulators.
It has also empowered new business commerce and expanded the reach for new gig workers — all through the power of your smartphone and digital payments, which have now been embedded directly into your customer experience with your brand.
For example, in Latin America, the informal economy is one of the main sources of income for much of the population. It was estimated by the OECD (Organization for Economic Co-Operation and Development) that approximately 70% of the GDP was not in the formal payment systems, and, therefore, not controlled by the government in 2018. Now, in 2023, according to McKinsey, only 36% of POS transaction values are in cash.
As a consumer, you have the power to search for any product or service through your mobile phone — and as a gig worker, you can have a constant cash flow through the ease of access to consumers and needs. This win-win scenario creates more of an entrepreneurial mindset for all. It can also threaten big box companies, as small business owners have easier access and less friction. Large and small brands see opportunities and challenges to connect and build a lasting direct relationship with consumers who now have digital optionality everywhere.
The data behind money
With this continuously evolving scenario, a question comes to mind: How are companies navigating the ecosystem and merging payments into their businesses? The answer to that is data.
Bringing modern payments to emerging markets creates a world of opportunity. By developing a multitude of microcosms, we can bridge the gaps between the various services people need — like doorstep grocery delivery and rideshares — and the digital solutions necessary to facilitate those instantaneous transactions through new customer experiences and payment flows.
In the process, companies collect a wealth of data about consumers that isn’t possible to trace or understand in a primarily cash-based society. By switching to digital payments, companies gain the power to track a consumer from one merchant to another, better understanding transactional and behavioral patterns and moving into hyper-personalization of offers and products. This helps them to understand the services they’re searching for (i.e., what they ate at the last restaurant they visited and which products they are purchasing — down to the SKU and size). This data can transform marketing strategies and reimagines customers’ journey with vendors to drive new offers and loyalty programs in a direct relationship between brands and consumers through their embedded payment flows.
Of course, alongside this data comes the pressing need for payment processors and issuers to manage and use it responsibly. Currently, the payments industry is on track to realizing the potential of new microcosms previously not possible, all while striking a proper balance of consumer consent, reporting and data protection. It’s only a matter of time that the power of the data will create increased knowledge of the consumer and our respective needs.
Empowering people and delivering commerce
When used correctly, modern payment solutions do not simply create user convenience. Rather, they also improve safety, security and speed at every turn. Moreover, the data behind the payments can transform how we discover and interact with customers. For businesses (small and large), this is an opportunity to create targeted campaigns for consumers, offer services and products with ease and globally, create a consumer-friendly user environment in their platforms and ultimately grow their revenue and client base.
How can this be done? The key to ensuring that payments continue to disrupt our ecosystem positively requires the recognition of a fundamental fact:
The power lies with the consumer, who has more choices than ever. Today’s best financial services companies, ecommerce brands and tech startups are leading the pack as they focus on becoming better partners to their consumers, making them better suppliers.
The explosion of optionality and digital touchpoints between consumers and brands has continued to underscore the criticality of customer experience, digital transformation and data enablement for brands and sellers. Robust engagement through the customer journey for brands will set them apart with consumers who are looking for a consistent and frictionless experience from start to finish.
By fixing our alignment on what’s best for the people at the other end of the equation, the financial services industry has the potential to change the world as we know it — and this change is happening right in front of us today.