The modern age of connectivity has had huge implications in almost every walk of our lives. For instance, it has significantly transformed the local payment methods. While cash payments and debit/credit cards were the preferred modes of payment, digital payments are rising consistently across the world.
Local Payment Methods
From digital wallets to dematerialized cards, there are now a host of digital payment channels available. Rising use of mobile phones, easier availability of cheaper internet, and even the COVID pandemic are some of the reasons responsible for the growing popularity of digital payment channels. In fact, according to the Digital Payments Global Market Report 2020-30 by BCC Research, the digital payment industry will grow from $3,800 billion in 2019 to around $8,000 billion by 2025, growing at a CAGR of 20%.
Take a look at some of the factors responsible for the digital transformation in local payment methods
1. Rising Number of FinTech Startups
Startups involved in financial technologies, FinTechs, are consistently rising across the world. While many traditional financial institutions still use the legacy IT infrastructure, the world is fast upgrading to the latest digital transformation. Several FinTechs are abundantly focused on offering innovative products and services that simplify the payment methods.
Apart from convenience, these advanced solutions are also highly secure and often cheaper than traditional methods. In the future, consumers and even businesses will be naturally drawn towards these innovations.
2. Increasing Need for Financial Transparency
Several countries, such as India, the USA, and Europe, have taken stringent measures to prevent financial institutions from monopolizing the markets as it negatively affects other businesses and even consumers.For instance, Europe has introduced the concept of Open Banking which has made it mandatory for the banks in Europe to offer their API (Application program Interface) to 3rd parties when dealing with customer data. FinTechs and startups can use these APIs for creating innovative products that further facilitate local payments.
This not only paves the path for more innovation but also helps boost financial transparency. As you might know, it is significantly more challenging to conduct fraud or hide transactions in the digital world as compared to offline transactions.
3. Steady Rise in Local Payment Methods
For consumers, another significant reason to prefer digital payment channels is their security. Rather than dealing with cash, which is always risky, or using their debit/credit cards, online payments are more secure. For instance, the UPI payment interface introduced by the Government of India is witnessing a steady rise in daily transactions in the country.
As consumers now prefer these digital payment solutions and services, even offline and online businesses have now started accepting such payments. Their popularity is only expected to increase with time as consumers will expect such payment options from every business they deal with.
As these methods will be preferred over offline transactions in cash or through cards, businesses will not have an option but to accept such payments.
4. Faster Transactions
Digital transactions often do not have any manual interference. This also makes them significantly faster than offline transactions. One of the biggest examples is cross-border payments. While it used to take anywhere between 3-5 working days to complete a cross-border payment offline, digital channels can do the same within minutes or a few hours.
For instance, international remittances between the USA and India used to take at least 3-5 days with the traditional methods. But there are now banks and financial service providers that offer same-day or even instant USA to India money transfer services. All of this has been possible through technology integration powered by digital payment channels. This is not only helpful for individuals but also businesses that regularly conduct cross-country transactions.
5. Rise in Online Shopping After COVID
As the COVID-19 pandemic gripped countries across the world, stringent lockdowns were implemented by most. With offline businesses shut, the only way for the consumers to make purchases, at least of the essentials, was through online platforms. While offline businesses were not allowed to operate, online stores were given limited permissions in several countries.
As a result, e-commerce was one of the very few sectors that was able to grow in 2020. For instance, according to a report by Digital Commerce 360, e-commerce grew by as much as 44% in the USA in 2020. Similar trends were witnessed in most major countries. Consumer habits take a lot of time to change. But it is not difficult to see that more and more consumers are now giving online shopping a preference over offline channels. This has a lot to do with convenience and even the elimination of visiting offline facilities while the pandemic is still very much a threat in several countries.
Even once the pandemic is over, it is very much possible that online platforms and digital payments will become the preferred option for most online shoppers.
How Developing Countries Like India and Indonesia- People Prefer Payments in Local Currencies and Methods?
While e-commerce is turned into a global phenomenon, it is still necessary for online platforms to offer local payment methods in every country they have their operations in. This trend is more evident in Asian countries like India and Indonesia. The simple reason for this is the expectations of the shoppers. The fluctuating exchange rates can be very confusing for any cross-border customer wanting to purchase something from your website.
According to research by Baymard, the average cart abandonment rate is close to 70%. But if shoppers are provided the option to pay in their local currencies, the cart abandonment drastically falls by 40%-50%. So, it is critical for e-commerce portals to provide this flexibility of local currency payments to the customers while also ensuring that they have measures in place to avoid cross-currency exchange losses. Measures like DCC (Dynamic Currency Conversion) and MCP (Multi-Currency Pricing) are commonly used by online sellers to eliminate the challenges.
The Future of Digital Payments
It is not difficult to predict that digital payments will continue to grow in popularity. As a business owner, especially e-commerce, it is time for you to adopt such digital payment channels to future-proof your business and fulfill customer expectations.
If you sell products in multiple countries, it is advisable to offer the local currency payment facility to the customers to reduce cart abandonment and grow your sales and revenue.