Fintech has become an essential element to our consumer world, but why is that? Traditional banks and methods of payments have become fundamental to our socioeconomic climate, but their ingrained existence in our everyday life makes it harder to make swift change. However, in 2020 we saw the highest growth rate for ecommerce in 5 years, driven by the pandemic. With that in mind, the fundamentals and purpose of fintech became all the clearer to society. Fintech solutions, such as alternative payment methods, have developed alongside modern technology, and place customer needs at the forefront of their delivery.
Legacy payment methods remain prevalent in pockets of society but at a lessening rate, due to the mainstream use of alternative payment methods such as digital wallets, crypto, prepaid cards, etc. In 2020, we saw the abrupt shift in commercial movement with the COVID-19 pandemic which caused the decline of the use of cash at the point of sale. Restricted movement and access to goods forced consumers to seek alternatives to their traditional brick-and-mortar stores.
Are cash and cards disappearing?
In essence, no. At least not completely. They are a universal fiat currency, after all. But there is significant change which has surged since 2020. Since then, the pace has not diminished, although we have begun to see the emergence of traditional methods again. Point-of-sale transactions were most impacted in 2020, falling 4.4% from the global transaction percentage in 2019. Nonetheless, the return to legacy payment methods remains at its lowest, and with the increasing use of alternative payment methods, there is little room for slow legacy platforms. This need for speed and gratification, at an increasingly higher rate with growing populations, is hindering the expense of cash. Safety concerns with cash, combined to a new sense of normality which isn’t defined by physical points of sale are consoled by ever-evolving fintech solutions such as cards, digital alternatives, and e-wallets.
Arguably, legacy payment methods are not being banished, because the use of more popular payment methods are dependent on the existence of a card and bank account. For instance, mobile wallets such as Apple pay are still card driven, but the convenient innovation stems from its ability to ‘bundle’ the service together. Online purchasing methods offer the use of pre-saved card details, and whilst they offer a seemingly ‘cardless’ purchase; it is the tokenisation of pre-saved details which offers a differing experience that continues to revolve around the presence of a traditional card. Cash also remains prominent in MEA, accounting for 52.6% of 2020 point-of-sale transactions. In areas of which consumers are underbanked or unbanked completely, cash will continue steadily down the stream until further accessibility is granted to digital resources. In Nigeria, cash accounted for 91% of point-of-sale transactions in 2019. This fell to 69% in 2020, which despite the withdrawal, is still protuberant in comparison to other regions. Emerging from 2020, it is evident that legacy platforms are still within our economy and will be for some time, before resuming a gradual decline in the coming years. With the continual uplift in APMs presently and future predictions as seen below from The Global Payments Report, it indicates that the future of payments will be comprehensively digital and virtual.
This doesn’t negate the emergence of alternative payment methods which are becoming the habitual choice. There is no consistent approved payment method globally. Consumer payment methods vary globally, showcasing diversity in history, technological, socioeconomic, and regulatory factors. Ecommerce in Europe is heavily card driven in comparison to Africa, where card penetration is exceptionally low. Whilst Nordic ecommerce is highly influenced by digital wallets and instalment payments. Urbanised regions who are more prepared for the digital adoption have done so on an uphill incline, as seen with Chinese consumers who account for 72% of ecommerce purchases and are leading the use of digital wallets.
What makes fintech so lucrative to society?
As already stated, the abrupt shift in 2020 hastened the adoption of alternative technologies and unlikely business trades. Facilitating these partnerships and the movement of goods was supported by the presence of fintech solutions, with alternative payment methods accommodating international trade at a time in which the world reached a halt. Thinking about what fintech offers in comparison to traditional finances, we see the resistance and deep-rooted traditions of legacy platforms. Fintech, on the other hand, provides agility and feeds its growth off consumer experience, which is less prevalent in legacy platforms. It is this growth and user-friendly culture which makes fintech a key to global success.
The prosperity lies in the fact that despite the continual emergence of new fintech innovations for alternative payment methods, we will see the integration of newer solutions as a more agile ‘traditional’ method in years to come. By 2024, the Global Worldpay Report estimates that 84.5% of global ecommerce spend will come from the use of digital wallets, debit, and credit cards.
Achieving global adoption of APMs for success
As we’ve seen the global shift, be it in different variations, to new technologies since 2020, the question lies in how to leap to a successful future. Creation of a localised offer will create profitable return, and in time, global success. But how? Going local means that you truly understand your local environment, the trends and consumer behaviour and relevance of certain payment methods. Use of local APMs is a key driver to understanding the local economy, where people are driven to certain payment methods over others. What can merchants expect to see when cultivating APMs at a local level?
- Younger generations driving adoption
- Different behaviours and access depending on the region
- The need for trust building in a post-covid world
- Continual presence of legacy platforms – they aren’t to be outcasted!
Insight is fundamental for a merchant to create the relevant and personal experience for consumers at a regional level. The solution in great fintech customer service isn’t through offering all alternative payment methods possible. The more payment methods a merchant has, the more they need to manage.
With so much competition in ecommerce, fintech and payments the differentiator for a merchant is customer experience. E.g.
- How easy is it to pay?
- How quickly can I buy?
- What payment methods are available?
It is the knowledge of local areas’ buying habits which will cultivate a seamless and slick payment process, that encompasses the right alternative payment methods.
Shopper behaviour is continually evolving, and highly influenced by accessibility to resources. Resources such as funds, mobile devices, cash, bank accounts, intracontinental movement. The pandemic showed us that the need for APMs is rife, with countries relying on international trade and consumers shifting onto the accelerating pathway of online shopping. As we progress through 2022, the fading presence of cash will bear its head differently across the globe. But the need for movement of money in an efficient, secure, and fast way is a universal demand. Finding the balance between the right number of payment methods, and not inundating consumers with lists of options, will unquestionably benefit merchants during the current digital age. Whilst adoption of alternative payment methods and fintech has surged since 2020, it will continue at differing speeds globally, which further emphasises the need to place focus at a local level.
Did you see our animated miniseries? enjoy our short clip on ‘not all technologies need alternative options but fintech does’.