Emerging Markets Provide Disruption Opportunities for Payments Systems
With 80% of the world’s population living in Emerging Market economies (EMEs) like Brazil, India, Russia, China and Mexico, it’s important to note how consumers in these countries are shifting away from traditional cash payments and driving the growth of stronger infrastructure for electronic payments. EMEs represent almost 90% of people under the age of 30. For example, in India the primary age for users conducting transactions online ranges from 15 to 34. This generation craves technology and innovation to the point where digital solutions are becoming a necessity in their everyday lives. In fact, over the next 10 years, this drive for digital will cause the number of active users to rise by 15%. Similar statistics are emerging for countries like Malaysia, South Africa and the Philippines.
A widespread increase in literacy has driven up per capita income in EMEs resulting in higher purchasing power. But more than two billion adults across the globe have limited or zero access to brick and mortar banking institutions because they live in underdeveloped or inaccessible geographical areas. Technology has enabled them to bypass these institutions by providing e-banking and mobile money to countries like Kenya where more than 60% of adults make or receive mobile payments. Regulators in EMEs are beginning to accept that future economic growth may depend on their ability to facilitate electronic payments and are thus modifying their rules and systems to cater to both traditional and non-bank payment providers.
Alternate Payment Models Causing Disruption
Traditional banks are facing tougher competition due in part to Fintech start-ups and non-bank payment services providers. While banks may present less risk, their technological progress often moves at a slower pace due to regulations and the complexities involved in providing a variety of services. Non-bank providers can often avoid these issues by honing in on specific services that enhance the payments process. This allows them to create efficient, simple, scalable solutions, geared to the specific needs of a growing population. PwC reports that in 2017, we’ll see these companies grow to represent 60% of all online transactions.
Countries like China and Nigeria are embracing financial inclusion and EMEs everywhere are connecting citizens digitally who previously had limited participation in their local economy. The focus on simplicity and security for each transaction has resulted in technological advancements that could set the future standard for payments, if executed successfully. These advances include things like near field communication technology (NFC) that allows for the secure exchange of information between wireless devices, social media payments that allow people to exchange money with friends or make purchases directly through a social app and Bluetooth Low Energy (BLE), used by brick and mortar retailers to send promotions and enable payments for newly connected customers.
The Emerging Market Road to Success
While the road to financial inclusion may be paved with good intentions, EMEs still face the significant instability risks that have grown synonymous with their global, economic image. However, if these can be overcome, the potential rewards are well worth the investment. Thus, regulators are dedicated to improving the free flow of secure electronic payments while capitalizing on data analytics to push past legacy performance. EMEs may have larger than average populations, but the size of each transaction is comparatively small. As a result, partnerships are forming between conventional PSPs and their new, cutting-edge counterparts to form more stable business models. Ecommerce merchants who wish to capitalize on a growing international customer base should continue watching how these trends and technologies progress.