A recent report by McKinsey & Company showed that consumer use of digital payment methods has increased from 51% in 2021 to 62% in 2022. Global regulators are placing increasing emphasis on digital finance, leading to greater integration of digital payments into the financial services sector.
In 2022, digital payments have penetrated to 89%, and the percentage of respondents using two or more forms of digital payments has increased even more rapidly, from 51%in 2021 to 62%. In-app and peer-to-peer (P2P) purchases have shown the greatest gains, often building upon the existing use of online payments (which is still the leading digital use case, used by 69% of consumers).
The digital payment transformation was accelerated by the ‘buy now, pay later’ (BNPL) service and cross-border instant payments. These trends are enabling innovative changes and creating new opportunities for both established players and disruptors in the industry to expand their customer base, introduce new products, and increase their market share. As a result, the industry is being reshaped to a great extent by:
FIs focus on real-time, cross-border and contactless payments, as well as investment in payment options.
Real-time payments
Real-time payments have become a critical component of global financial transactions, which enable end-to-end communication and faster transaction processing. As a result, the market for real-time payments has experienced significant growth and is expected to reach $86.89 billion by 2028. This impressive growth is forecasted to represent an estimated compound annual growth rate (CAGR) of 32% from 2022 to 2028.
The trend towards automation in treasury functions, including management, reporting and forecasting is providing chief financial officers (CFOs) with enhanced access to timely and comprehensive data through real-time processes. As a consequence, FIs are moving towards infrastructure changes to enable greater flexibility and accommodate the next generation of real-time payment types.
Improvements in cross-border payments
The cross-border payments market has been beset by numerous pain points and inefficiencies which resulted in expensive transaction fees and cumbersome payment processing methods that have impacted the overall efficacy of the payment system.
The growing demand for cross-border payments highlighted the need for a better global international payment system that enhances end-user access. It requires efficient, reliable and secure cross-border payment service comparable to domestic payment service.
Consequently, innovative business models are now addressing the inefficiencies in cross-border payment systems. Industry players continue to develop new solutions that offer seamless and cost-effective cross-border payment services for users.
Cards and payments markets are expected to further grow as a result of more payment options and innovation.
Contactless payment with virtual cards and wallets
The contactless payment transactions market has emerged as a prominent trend amid the pandemic-induced changes in consumer behaviour. As a viable payment method, it is projected to experience a compound annual growth rate (CAGR) of 43.7%, indicating significant growth potential. The decline in the usage of cash is attributable to the changes in purchasing patterns observed during the pandemic and the popularity of contactless payment solutions. The future of contactless services in the payments industry is optimistic and poised for further growth.
Digital transactions via mobile-based payments have accounted for over 50% of global revenue, indicating a shift away from cash payments. The use of digital wallets has become increasingly prevalent, with people preferring to conduct transactions digitally. Moreover, the emergence of innovative payment solutions, such as payment bands and rings that facilitate contactless payments, is poised to drive further growth in this segment.
More investment in payment choice
People are becoming increasingly comfortable doing business online and customers have diverse payment preferences and requirements, ranging from tapping digital wallets to using government benefits. To maximise customer choice and foster loyalty, companies are providing payment options such as buy now pay later (BNPL), PayPal, and pay-by-bank across various channels. These enable customers to receive instant payouts into the account of their choice, demonstrating that payments are now seen as an opportunity to enhance customer experience.
In 2023, FIs will focus on offering various payment options to cater to the diverse payment preferences of consumers, which are often influenced by their real-world requirements. FIs will also enhance customer loyalty and help individuals manage their finances more efficiently.