Finance and Accounting

The future of digital payments: Trends shaping the next decade

Financial technology (fintech) has grown exponentially over the last few years with digital payments at the forefront in the US and across the world. According to a leading financial advisory services company, banknotes make up less than 19% of transactions, and by 2030, cashless transactions will increase by 200% to drive the future of digital payments.

The pandemic has pushed the digital revolution further, and digital wallets are set to account for $10 trillion in global transaction volume by 2025. Over the next ten years, digital payment services will integrate with intelligent ticketing for entertainment, connected cars, smart-home devices, travel systems, and wearables.

What is the future of digital payments?

Digital payments are rapidly overtaking the cash and have already dwarfed the check. In the UK, less than 1% of retail payments are through checks and 6% through cash. Here are some of the top trends in digital payments to look out for –

Financial inclusion

With physical cash on the decline, the future is in financial inclusion, with businesses and individuals having equal access to digital services. All national and regional governments and banks will push for greater inclusion, which is a crucial indicator of economic development. In the future, we can expect to see a greater number of financial service providers diversify their reach to meet the internationally agreed targets for inclusion.

Cryptocurrencies

Cryptocurrencies powered by blockchain are decentralised payment systems that governments or institutions do not control. It is a record-keeping network that securely validates the transfer of cryptocurrencies.
With over 12,000 cryptocurrencies already in the market and new ones entering each day, the growing trend cannot be ignored. As more people hold cryptocurrencies, more merchants will offer to accept them.

Central bank digital currencies (CBDC)

CBDCs are government-issued digital currencies that are an alternative to cryptocurrency and are tied to the nation’s fiat currency. Centralised banks (e.g., Eastern Caribbean Central Bank) can implement and govern CBDCs. They can also be available through private sector entities.

Like crypto, CBDCs have the advantages of reducing risk, minimising third-party input, and simplifying record keeping. They are well-suited to combat illegal financial activity such as money laundering and tax evasion.

Digital wallets

Digital wallets are a well-established mode of digital payment. A study shows that they will overtake the use of physical cards in the US to become the single largest online payment method in less than 5 years. While Apple Pay and Google Pay are two of the most popular digital wallets in the US, there are several others that dominate international markets. For example, China’s Alipay and WeChat Pay dominate 90% of the domestic market. Paytm, along with Google Pay, is a dominant player in India, and MTN MoMo and Orange Money provide digital wallet services in Africa.

However, the funding source of digital wallets is rapidly changing, and direct bank debits without holding the money in a third-party wallet are on the rise. In countries like India, China, Germany, Poland, Indonesia, Norway, South Africa, Netherlands, Vietnam, Finland, and Thailand, over 50% of digital wallets are funded directly from bank accounts.

However, in the UK, US, and Australia, less than a third of users fund their digital wallets directly from a bank account.

Buy now, pay later (BNPL)

In recent years, BNPL has grown in popularity compared to traditional credit cards and personal loans. The customer can spread the payments over a period with minimal or no interest charges. This helps them with cash flow and reduces the risk of falling into unmanageable debt. On the other hand, merchants can see higher sales of goods that were previously out of reach for a buyer.

According to a study, the CAGR of BNPL transactions in 2021 was 28% in Europe, 115% in LATAM, 43% in North America, and 39% in APAC. This is set to double by 2024 and increase further in other verticals to build brand equity and customer loyalty.

Open banking

With a significant number of transactions being online, access to open data is a trend of the future. Open banking is crucial for third-party developers to build systems that allow communication between businesses, consumers, and payment processors. Online merchants can securely use fintech APIs to simplify spend management, authorisation, and payment processing.

The future is a cashless society

The rise of e-commerce drives these trends. While mobile applications form 54% of e-commerce transactions, e-commerce as a percentage of total spending stands at 13%. Compared to its post-pandemic status in 2021, the e-commerce market has grown by over 50% by 2024, and this trajectory is set to increase as more consumers become comfortable with online purchases.

How can Infosys BPM help your business ride the wave of digital finance solutions?

The digital finance solutions at Infosys BPM leverage cutting-edge technologies such as automation, analytics, blockchain, artificial intelligence, digital operations, and point solutions to deliver top-quartile business outcomes.

Read more about financial technology services at Infosys BPM.