July 27, 2022

Report Explores a New Era for Digital Payments

Following a white paper, Going digital: payments in the post-Covid world, The Economist Intelligence Unit (The EIU) published in 2021, which showed how digital channels were replacing traditional modes of payments across the world amid greater uptake of mobile wallets and other forms of digital payments, The EIU recently developed a new dataset, along with five-year forecasts, confirming these trends. Entitled Beyond borders: a new era for digital payments, this white paper offers an overview of The EIU's forecasts for digital payments, as well as the accompanying stagnation of automated teller machine (ATM) numbers and the mixed outlook for card payments. It also looks at the new frontier for disruption: cross-border payments.

Below are the paper's key forecasts:
  • Following a surge during the pandemic, when lockdowns forced consumers online, growth in digital payments will soften during our five-year forecast period (2022-26).
  • The number of ATMs will stagnate or decline, while debit and credit cards will struggle to maintain market share as mobile payment platforms gain more traction.
  • While digital disruption to domestic payments continues, the ongoing Russia-Ukraine war will cause parallel disruption to cross-border payment systems and potentially challenge the dominance of SWIFT.
  • Countries will seek to interlink their national fast-payments systems, reducing intermediaries and bringing down the cost of sending money abroad.
  • Countries across Southeast Asia are in the process of interlinking their fast-payments systems to allow travelers across the region to purchase goods and services by scanning quick-response (QR) codes.

The report also points that APIs, tokenization and blockchain will together become the new normal. "As well as challenging SWIFT, disrupting cross-border payments will mean adopting innovative solutions and emerging technologies, including blockchain, APIs and tokenization."
  • APIs have been a game-changer for retail payments, providing end-to-end tracking of payments and confirmation of transactions to all parties involved. They enable interaction across the digital marketplace, higher levels of transparency, and a seamless experience for both customers and merchants.
  • Tokenization, which creates a unique code for every single transaction conducted through an API, and blockchain technology, have also emerged as a major way to ensure security, improve efficiency and raise the transparency of payments.
  • Blockchain technology employs encrypted distributed ledgers that eliminate the need for any intermediaries but still provide verification of transactions in real time.
  • As with domestic payments, real-time payments will also become a cornerstone for the acceleration of cross-border payments.

With respect to governments encouraging development of cross-border payments linkages, The EIU expects "increasing involvement from government entities to facilitate the development of the fintech sector, promote financial inclusion or aid the flow of remittances from overseas workers." The paper further says "Singapore (with PayNow) and Thailand (PromptPay) were the first countries to interlink their fast-payments systems in April 2021. More countries, especially in Asia, have since unveiled plans for similar tie-ups." Importantly, "This process will also be facilitated by the development of central bank digital currencies. These digital currencies aim to provide efficient and inclusive payments services—which traditional systems have failed to provide—and also emerge as trustworthy alternatives to private projects such as stablecoins, cryptocurrencies that (in theory) peg their value to another currency or commodity."

At the same time, the paper notes that "countries like Russia, China and India could encourage international trade denominated in their own currencies, or enter into bilateral trade agreements—between the rupee and ruble, for instance—to avoid settlements in dollars or euros." What is more, "Although the US dollar’s dominance of international trade will remain unchallenged in the short and medium term, emerging powers in Asia will try to reduce the greenback’s influence to avoid runs on their foreign-exchange reserves and mitigate the impact of any future disruptions."

The report provides a thorough explanation on how digital channels are replacing traditional modes of domestic payment around the world amid greater uptake of digital wallets and other forms of mobile transactions. Moreover, businesses of all sizes will find value in The EIU's latest forecasts for domestic payment flows and the deep-dive into the future of cross-border transactions.

How is your business taking advantage of the digital disruption of cross-border payments?

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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