November 16, 2021

Report Explores How the Digital-Payment Revolution Is Transforming Business in a Post-Covid World

According to a report published by The Economist Intelligence Unit (The EIU) about the growth of digital payments, "Across the world, digital payments are now synonymous with mobile payments, with the rate of adoption directly linked to access to smartphones and telecoms networks, The furious growth in digital payments in developing countries, especially in Asia, demonstrates the impact of the coronavirus (Covid-19) pandemic in advancing online retail sales, as well as the role that governments and regulators play in facilitating the spread of new payments systems."

The EIU's "research shows how the digital-payment revolution is transforming business in different parts of the world. Governments have a crucial role to play in formulating policies that guarantee equitable access to these systems while encouraging innovation. However, regulators' responsibilities will increase further with the spread of digital currencies and super apps, which will allow for more cross-selling while also exacerbating the risks to data security, privacy and sustainable credit terms. Both payments services providers and conventional financial services companies need to be ready for regulatory shifts as they seek to take advantage of new opportunities."

Key findings from the report include:
  • Governments in countries with a low level of digitalization and unsatisfactory financial inclusion must recognize that an enabling policy framework and public investment are keys to the successful widespread adoption of digital-payment systems.
  • Payment-platform providers must create additional capacity to prepare for greater demand for digital-payment services, as well as opportunities to migrate customers to financial services that yield higher margins. They must also prepare for the rising costs and complexities of compliance with regulatory requirements.
  • Firms and service providers in adjacent areas must rapidly transform their businesses to benefit from these developments. Their strategies should include improving the interoperability of their digital platforms and deploying application programming interfaces (APIs) to allow the use of embedded-payment systems.
  • Regulators must adopt a proactive, multi-level approach to technological changes when formulating new standards, as well as closely monitoring any financial risks within payments systems.

For those who traveled to China in the past few years know that the use of hard currency in commercial transactions is virtually non-existent. As indicated in the image on the right, China leads the global mobile-payment market with over 80 percent of smartphone users adopting mobile payments through Alipay or WeChat Pay apps. "A more radical approach has upended payments in China and is increasingly doing so in other parts of Asia," the report explains. "AliPay and WeChat, whose apps link users' mobile phones to existing bank accounts, emerged with the spectacular increase in Chinese e-commerce at their parent firms, Alibaba and Tencent, in the 2000s. Originally used for online purchases and messaging, they expanded to become 'super apps'—all-in-one platforms that offer ride-hailing, food delivery, entertainment services and a full range of financial products, including credit and insurance. Singapore's Grab, Indonesia’s Gojek, South Korea's KakaoPay and India's Flipkart and PayTM are aiming to build their own super apps." Similar efforts in Africa are also taking place. 

The EIU's importantly points out that "Despite the enthusiasm around emerging modes of payment, numerous sources of apprehension remain unaddressed. These include concerns around data security, financial fraud, cybersecurity and the role of regulators, many of whom are behind the curve when it comes to technological advancement. The absence of common regulatory standards among geographically contiguous countries, potentially leading to the creation of regional monopolies, is a related concern."

The aforementioned risks notwithstanding, "The benefits of digital payment systems significantly outweigh the risks associated with them," The EIU asserts. "For governments, they provide an avenue to raise financial inclusion and further the cause of economic development. Individuals, especially those in developing countries, can more effectively participate in economic activity. Private organizations will benefit from the new opportunities created as a result."

How do you think the digital-payment revolution will transform business in a post-Covid world?

Aaron Rose is a board member, corporate advisor, and co-founder of great companies. He also serves as the editor of GT Perspectives, an online forum focused on turning perspective into opportunity.

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