Cashing in on Cashless Payments: Rise of Global Consumer Brings Surging Demand, Disruptive Competition to Industry in Flux

Cashing in on Cashless Payments: Rise of Global Consumer Brings Surging Demand, Disruptive Competition to Industry in Flux
04.08.2016 11:15 am

Cashing in on Cashless Payments: Rise of Global Consumer Brings Surging Demand, Disruptive Competition to Industry in Flux

Payments

From Shanghai to São Paulo, Dhaka to Dar es Salaam, tarnished coins and crumpled banknotes are rapidly giving way to a frictionless vision of swipes, clicks, taps, and apps. A report released today finds the boom of mass consumption in major developing markets—and mobile internet access everywhere—fueling a surge in demand for new methods of cashless payment. This is transforming the industry as new competitors and business models rush in to meet the needs of every imaginable consumer cohort and use-case. Across the planet, traditional banks and credit-card networks are now competing directly with retailers, telecom providers, established tech giants, social-media upstarts, and scores of regional, often government-backed initiatives to handle the transactions of customers previously relegated to cash or barter.    

The End of Cold, Hard Cash and the Global Shift toward Cashless Consumer Payments is the latest publication from The Demand Institute, a non-advocacy, non-profit think tank jointly operated by The Conference Board and Nielsen. The report reveals how the explosion in growth of internet access and global penetration of mobile devices is making the technology that enables digital storage and exchange of money a reality in long-underserved markets. Over the next five years, it projects 1.2 billion customers will gain access to the internet for the first time. Over the next decade, growth in access to cashless payments will contribute $10 trillion in additional consumer spending worldwide—including $170 billion in China alone.

"The spread of mobile devices and alternative payment networks will, most dramatically, give two billion 'unbanked' consumers their first means of participating in the modern, connected economy—including basic financial services," said Louise Keely, president of The Demand Institute. "But the proliferation of cashless payment services will benefit all consumers, in advanced as well as developing economies: It promises to enhance their experience of shopping across all channels, enable them to have products and services better suited to their preferences and needs, and help them manage their spending and borrowing more effectively. The question now is which model or combination of models will best deliver these benefits—a battle which is now playing out in wallets, phones, and minds of consumers worldwide."

Among the report's key findings:

  • Four long-term trends—the spread of mobile technologyGDP and household income growth, a demands for financial inclusion, and security concerns overs cash transactions—have reached a tipping point in favor of cashless payments for billions of consumers across emerging and middle-income economies.
  • The addition of payment systems to social-media services like Facebook's Messenger and Tencent's WeChat in China points to the ultimate holy grail for consumers and businesses: the convergence of all aspects of the consumer experience—including marketing, advertising, shopping, social media, entertainment, and financial services—onto a single, seamless platform.
  • With trillions of dollars at stake, the competition to deliver this cashless future is being fought by three broads groups of players: Core Providers, rooted in traditional credit, debit, and prepaid cards;Adjacent Participants, including retailers that handle their own payments and closed-loop payment systems; and New Entrants, potential disruptors which range from Apple and Google to mobile-app start-ups, bitcoin services, and telecom giants across Asia, Africa, and Latin America. Each has major strengths and weaknesses, and it is too soon to say which will succeed.
  • Whichever segment prevails, the payments industry will change in three fundamental ways: Revenue earned per transaction will decline; the number of transactions will rise, while average transaction size will fall; and indirect revenue opportunities will increase.
  • Outside the payments industry, retailers and other consumer-facing businesses will also face significant disruption. Their customers will increasingly seek connection between cashless payments and the shopping and purchase process across all channels, allowing them to personalize and diversify their shopping patterns. Brands can act now to provide consumer access across devices and payment types, allowing movement between online and offline shopping and connection across borders.

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