Three important payment trends in 2022

By Nicholas Larseninternational banker

An the early 2010s, cash was still king when it came to popular means of payment in much of the world. But with the emergence of electronic, mobile and contactless digital payments as innovations in the space have intensified since then, the industry in 2022 is barely recognizable from that which prevailed a decade ago. And that means exciting developments continue to push 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 drastically reduced opportunities for in-person transactions. “In March 2020, there was a shift in how consumers paid,” Joel Henckel, senior vice president of Mastercard, recently acknowledged. “For the first time ever, card-not-present transaction volume has exceeded card-present, and the shift has not returned to pre-pandemic levels.”

Indeed, McKinsey & Company’s seventh annual Consumer Digital Payments Survey of more than 1,800 US consumers, released in October, found that nearly nine in ten Americans are using some form of digital payment in 2022 and s are engaging with these rapidly evolving solutions in more diverse ways. From mobile apps to QR (quick response) codes to wearable devices, the multitude of ways we can transact today means we’re in the midst of a true payments revolution.

The standardization of digital wallets

With options provided by Apple Pay, Google Pay and other major mobile payment services, the standardization of digital wallets continued unabated in 2022. Seeking to provide 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, estimates suggest that approximately 4.4 billion global consumers will purchase with a digital wallet by 2023, representing 52% of e-commerce payments globally. And 1.6 billion global consumers will pay with point-of-sale (POS) digital wallets in 2023, representing 30% of POS payments.

Again, the coronavirus pandemic appears to have played a pivotal role in driving much of the world to mobile wallets, which they typically access through smartphone apps. In most cases, it seems that the digital wallet provided by his bank represents the most common provider. But additional wallets via other apps are becoming more and more common.

Indeed, more than two-thirds of Americans are expected to have at least one digital wallet within two years, and many will likely hold multiple wallets, according to the McKinsey survey. “Our 2022 survey found a marked increase in the share of consumers intending to use three or more digital wallets in the coming years: from 18% in 2021 to 30% in 2022,” the report said. investigation. “This is a notable departure from the legacy model of carrying a single leather wallet.”

And software firm Global Payments’ 2022 Trade and Payments Trends Report, which included payment expert insights and survey responses from more than 100 global companies and issuers, revealed that 53% of merchants aim to expand their payment methods in 2022, of which 60% will accept digital wallets, primarily through online means and a variety of point-of-sale solutions. “With the increased acceptance of digital transactions, coupled with consumer preference, there is going to be an acceleration in [digital wallet] usage, even more than ever before,” said Dave Duncan, executive vice president and chief product officer of Global Payments.

Further Maturation of Buy Now Pay Later (BNPL) Market

From 2019 to 2021, the US Consumer Financial Protection Bureau (CFPB) found that the number of US-sourced BNPL loans from five of the largest lenders in the space increased by 970%, from 16, 8 to 180 million, while the dollar volume of these origins (commonly referred to as gross merchandise value or GMV) increased by 1,092%, from $2 billion to $24.2 billion. And according to Accenture, the number of BNPL users in the United States has exploded by 300% since 2018, with 45 million users in 2021.

This year, BNPL’s heavyweight continued as more players entered the booming market, allowing customers to purchase goods and services on credit, typically by paying a modest down payment. on their purchase at checkout, then dividing the remaining amount owed into small, interest-free installments to be paid over time. For example, the transaction may involve four additional installments, each to be paid by the consumer at two-week intervals in the future. Spanish lender Santander, for example, launched its own BNPL app earlier this year; Serving the European market, Zinia supports customer purchases with interest-free monthly installments where applicable.

The McKinsey survey found that more than a quarter of users this year would have bought less or not made some purchases if the BNPL option had not been available, a testament to the flexibility such a payment system. And of those who said they would have made their purchases without the BNPL option, 57% would have used credit cards, while the rest cited debit cards, with cash being a distant third, further emphasizing to how much everything has changed in the last decade.

That said, the survey saw no increase this year in the share of US consumers currently using BNPL services (30% in 2021 from 28% in 2022), although the share of respondents saying they are interested in future use increased from 11% in 2021 to 15% in 2022. And the products for which BNPL is most widely employed continue to be dominated by low-cost categories, such as clothing, and mid-priced items, including including electronics and appliances, McKinsey added.

The growing global acceptance and development of Central Bank Digital Currencies (CBDCs)

Basically, the CBDC aims to provide citizens with a form of risk-free digital legal tender, backed by the assets of a central bank. As such, the development and introduction of CBDCs into the circulating money supply could be the most significant advancement ever for digital payments. And given that nearly every country has now at least begun to explore the potential opportunities offered by a CBDC, it seems the world has caught on to this breakthrough.

Indeed, according to the Atlantic Council think tank, 105 countries representing more than 95% of the world’s gross domestic product (GDP) are currently exploring CBDCs, up from just 35 in May 2020. And perhaps even more excitingly, is that 10 countries have fully launched digital currencies. In June, Jamaica introduced its CBDC JAM-DEX as a form of legal tender, becoming the latest to do so.

But given the extensive work he has put into developing his own CBDC, the future launch of the Chinese digital yuan is perhaps the most anticipated right now. And in mid-October, it was reported that through dozens of trials across the country, China’s CBDC had reached the important milestone of 100 billion yuan ($14 billion) in open transactions, according to its central bank (the People’s Bank of China). ) Data. The volume of digital yuan transactions has also increased by 14% this year, although this is far less than the massive increase of 154% recorded between June and December 2021.

Elsewhere, a notable milestone for the development of CBDCs was the joint project announced by the Bank for International Settlements (BIS), an association of 61 global central banks, and the central banks of Norway, Sweden and Israel to undertake a CBDC exploratory initiative. Titled Project Icebreaker, it will involve a joint examination of how CBDCs could be used for international retail and remittance payments.

“Cross-border payments continue to be plagued by high costs, slow speed, limited access and insufficient transparency,” project officials said when it launched in late September. “Project Icebreaker is a collaboration…to develop a ‘hub’ to which participating central banks will connect their national proof-of-concept CBDC systems. The objective is to test some specific key functions and the technological feasibility of interconnecting different national CBDC systems. The BRI also pointed out that the system architecture is designed to enable “immediate CBDC retail payments across borders, at a significantly lower cost than legacy systems, which are typically based on payments sent through multiple different banks.” to the final recipient (the so-called correspondent banking system)”.

And in early November, India became the latest major economy to announce the launch of a pilot project to explore specific use cases for a digital rupee. “The use case for this pilot project is the settlement of secondary market transactions in government securities,” the Reserve Bank of India (RBI) confirmed, adding that the use of its CBDC is expected to make the market interbank more efficient. “Settlement in central bank money would reduce transaction costs by obviating the need for settlement collateral infrastructure or collateral to mitigate settlement risk. In the future, other wholesale transactions and cross-border payments will be at the center of future pilots, based on the lessons learned from this pilot.

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