Three important push trends in 2022

by Nicholas Larsenthe international banker

aAt the start of the 2000s, cash was still king as far as payment methods were concerned for most of the world. But with electronic, mobile and contactless digital payments coming to the fore and innovation in the space ramping up since then, the industry in 2022 is hardly recognizable from that of a decade ago. This means that exciting developments continue to move the space forward this year.

The COVID-19 pandemic has accelerated the need for robust contactless digital payment systems, as social distancing restrictions introduced in 2020 have greatly limited opportunities for in-person transactions. “In March 2020, there was a shift in how consumers pay,” Mastercard senior vice president Joel Hinkle recently acknowledged. “For the first time ever, card transaction volumes have exceeded those of the existing card, and the shift has not returned to pre-pandemic levels.”

In fact, McKinsey & Company’s seventh annual digital payments consumer survey of more than 1,800 American consumers, published in October, found that nearly nine out of ten Americans use some form of digital payments in 2022 and interact with these rapidly evolving solutions in ways More versatile. From mobile apps to QR (Quick Response) codes to wearable devices, the multiple ways we can complete transactions today means we are in the midst of a payment revolution.

Normalization of digital wallets

With options offered by Apple Pay, Google Pay and other important mobile payment services, the normalization of digital wallets has continued unabated in 2022. In pursuit of providing an improved, more convenient and frictionless payment process, the development of digital wallets has played a crucial role not only for individuals but increasingly for businesses of all sizes. As such, it is estimated that around 4.4 billion global consumers will shop using a digital wallet by 2023, accounting for 52 percent of e-commerce payments globally. And 1.6 billion consumers globally will pay using digital wallets at the point of sale (POS) in 2023, accounting for 30 percent of point-of-sale payments.

Once again, it appears that the coronavirus pandemic has been pivotal in driving much of the world towards mobile wallets, which they would normally access through smartphone apps. In most cases, the digital wallet provided by one’s bank seems to be the most popular provider. But additional wallets through other apps are now becoming increasingly popular.

In fact, more than two-thirds of Americans are expected to have at least one digital wallet within two years, and many are likely to own multiple wallets, the McKinsey survey found. The survey report stated: “The 2022 survey revealed a significant increase in the percentage of consumers who intend to use three or more digital wallets in the coming years: from 18 percent in 2021 to 30 percent in 2022.” “This is a marked change from the old model of carrying a single leather wallet.”

Software company Global Payments’ 2022 Trade and Payments Trends Report, which includes payment expert opinions and survey responses from more than 100 global companies and issuers, found that 53 percent of merchants aim to expand their payment methods in 2022, 60 percent will accept Among them are digital wallets, primarily through online means and a variety of point-of-sale solutions. “As acceptance of digital transactions increases, along with consumer preference, there will be an acceleration of this [digital wallet] “Usage, even more than there was already,” said Dave Duncan, Executive Vice President and Chief Product Officer, Global Payments.

BNPL market continues to mature

From 2019 to 2021, the US Consumer Financial Protection Bureau (CFPB) found that the number of BNPL loans originating in the US from five of the largest lenders in the space grew by a staggering 970%, from 16.8 to 180 million, while the size of these loans grew. Dollar assets (commonly referred to as gross merchandise value, or GMV) increased by 1.092 percent, from $2 billion to $24.2 billion. According to Accenture, BNPL user numbers in the US have increased by 300 percent since 2018, with 45 million users in 2021.

This year saw the emergence of BNPL’s giant power as more players entered the bloated market, allowing customers to purchase goods and services on credit by placing a modest down payment on purchase at checkout and then dividing the remaining amount owed into small, interest-free installments payable over time. . For example, a transaction might include four additional installments, each of which the consumer pays every two weeks from now on. For example, Spanish lender Santander launched its BNPL application at the beginning of the year; Zinia serves the European market, subsidizing customer purchases with interest-free monthly installments where applicable.

The McKinsey survey found that more than a quarter of users this year either bought less or did not make certain purchases if the BNPL option was not available, demonstrating the flexibility this payment system offers. Of those who said they would have continued their purchases without the BNPL option, 57 percent would have used credit cards, while the remainder cited debit cards, with cash in a distant third, further underlining the extent of change over the past decade.

However, the survey did not record any increase this year in the share of American consumers who currently use BNPL services (30 percent in 2021 versus 28 percent in 2022), although the share of respondents who report interest in future use is up from 11 percent in from 2021 to 15 percent in 2022. Products in which BNPL is widely used are still dominated by small-ticket categories, such as apparel, and mid-ticket items, including electronics and appliances, McKinsey added.

Growing global acceptance and development of central bank digital currencies (CBDCs)

At its core, CBDC aims to provide citizens with a risk-free model of digital fiat backed by central bank assets. As such, the development and introduction of central bank digital currencies into the circulating money supply could be the most important advance ever for digital payments. Given that almost every country has now at least begun to explore the potential opportunities that CBD offers, it seems that the world has caught up to this progress.

In fact, according to the Atlantic Council think tank, 105 countries accounting for more than 95 percent of global gross domestic product (GDP) are currently exploring central bank digital currencies, compared to just 35 in May 2020. Perhaps most exciting is that 10 countries have launched All digital currencies. In June, Jamaica filed its CBDC JAM-DEX as a form of legal tender, becoming the latest to do so.

But given the significant work it has done in developing its own biodiversity digital currency, the future launch of the Chinese digital yuan is perhaps the most eagerly anticipated at the moment. And in mid-October, it was reported that through dozens of trials across the country, China’s central bank digital currency had reached the milestone of 100 billion yuan ($14 billion) in current transactions, according to its central bank (the People’s Bank of China). ) data. Transaction volume in the digital yuan has also grown by 14 percent this year, although this is far less than the massive 154 percent increase recorded between June and December 2021.

Elsewhere, a notable achievement for the development of CBDCs was the joint venture announced by the Bank for International Settlements (BIS), a consortium of 61 global central banks, and the central banks of Norway, Sweden and Israel to implement an Exploratory CBDC initiative. The Icebreaker project, which is named, will involve a joint examination of how central bank digital currencies can be used for retail payments and international transfers.

“Cross-border payments continue to suffer from high costs, low speed, limited access and insufficient transparency,” the project leaders declared at its launch in late September. “Project Icebreaker is a collaboration…to develop a ‘hub’ to which participating central banks will connect local proof-of-concept CBDC systems. The aim is to test some specific key functionality and technological feasibility of interconnecting different local CBDC systems.” The BIS also highlighted that the system’s architecture is designed to enable “instant cross-border retail CBDC digital payments, at a much lower cost than existing systems, which typically rely on payments being sent through several different banks to the final recipient (called the correspondent banking system)” .

And at the beginning of November, India became the latest major economy to announce the start of a pilot project to explore specific use cases for the digital rupee. The Reserve Bank of India (RBI) emphasized that “the use case for this pilot model is the settlement of secondary market transactions in government securities,” adding that the use of RBI currency is expected to make the interbank market more efficient. “Settlement in central bank funds would reduce transaction costs by anticipating the need for infrastructure to guarantee settlement or for collateral to mitigate settlement risk. Going forward, other wholesale transactions and cross-border payments will be the focus of future pilots, based on lessons learned. learned from this pilot program.

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