Electronic payments are at the epicenter of the industry disruption, PwC finds

Rick Steves

Cashless payments like sending a text to pay for a bus ticket in Turkey, or using a QR code to buy groceries in China are evidence of a steady shift to a digital economy.

In the midst of a significant transformation, accelerated by the COVID-19 pandemic, the financial services industry is changing fast and electronic payments are at the epicenter of this transformation, said a PwC report.

Payments are increasingly becoming cashless, and the industry’s role in fostering inclusion has become a significant priority. The entire infrastructure of payments is being reshaped, with new business models emerging.

Asia-Pacific will grow the fastest, with cashless transaction volume growing by 109% from 2020 to 2025, followed by Africa (78% from 64%) and Europe (64% from 39%), Latin America comes next (52% from 48%), and the US and Canada will have the least rapid growth (43% from 35%), according to PwC findings.

Kurtis Babczenko – Global Banking and Capital Markets Leader, and US Finance Transformation Leader – PwC said: “A cashless world is in plain sight. The COVID-19 pandemic reinforced an already growing shift to digital payments and likely drove a three- to five-year acceleration in their use. The acceleration towards digital payments will create new opportunities for the entire payment ecosystem, including banks. But it will also expose weaknesses for those not prepared to adapt.”

Kurtis Babczenko – Global Banking and Capital Markets Leader, and US Finance Transformation Leader at PwC, said: “Aside from this shift to a cashless society, we need to also pay attention to a more profound change. Not only are consumers saying goodbye to traditional ways of paying for goods and services—including the humble paper check and analogue invoices, but the entire infrastructure of payments is being reshaped.

“That reshaping involves two parallel trends: an evolution of the front- and back-end parts of the payment system (instant payments; bill payments and request to pay; and plastic cards and digital wallets); and a revolution involving huge structural changes to the payment mix and ecosystem (emergence of so-called ‘buy now, pay later’ offerings; cryptocurrencies; and work underway on central bank digital currencies.”

One of the key themes that are influencing the payments industry is inclusion and trust. By 2025, smartphone penetration will likely reach 80% globally, largely via uptake in emerging markets such as Indonesia, Pakistan, and Mexico.

Cross-border payments are likely to accelerate in the next five years and senior payment professionals expect important regional developments towards a payment infrastructure in which card and other transactions run on joint account-based payment rails. Key initiatives in Latin America, South-East Asia, and Europe give testimony of this development.

CBDCs (Central Bank Digital Currencies) are predicted to have the biggest disruptive impact over the next 20 years and digital wallets are taking over: 86% of our survey respondents agreed or strongly agreed with the prediction that traditional payment providers will collaborate with fintechs and technology providers as a main source of innovation.

Security, compliance, and data-privacy risks and related issues were the top concern for banks, fintechs and asset managers in implementing a fully integrated technology strategy.

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