We know that digital payments are pushing physical cash and cheques out of the picture when it comes to monetary transactions.
This is largely fuelled by the fact that the number of e-commerce channels and contactless payment methods (card or mobile devices) is becoming increasingly widespread. The sheer convenience of digital payments is another driver.
But there are other factors driving digital payment uptake around the world that are less obvious. Here are some examples:
Digital technology in general has increased the expectations of younger generations around different aspects of day-to-day life that had previously changed little for decades.
Millennials are the first generation to have grown up with the internet, with Generation Z even more immersed in the digital world. As a result, they expect a customer experience that is innovative, convenient and digital-first.
For these generations, the more traditional ways of doing things, such as visiting a bank branch or paying for everyday items with coins and bank notes, barely figure.
In Sweden, for example, up to 95 per cent of purchases made by 18-24-year-olds in Sweden are with debit or the Swish payment app. As these upcoming generations reject cash, it’s hardly surprising that half of Sweden’s retailers predict they will stop accepting cash before 2025.
So it’s therefore also no surprise that digital payments, in all forms, are being driven by a generation that prizes the benefits they offer.
Another factor impacting the uptake of digital payments is government monetary policy. In India, for example, digital payments growth has been partly attributed to the removal of high-value bank notes from circulation, or demonetisation.
A report by the Reserve Bank of India suggested that the removal of Rs 500 and Rs 1000 notes from circulation in 2016 helped drive digital payments growth.
India recorded an accelerated growth rate of over 50 per cent in the volume of retail digital payment transactions in the last four years. With 3.5 million digital payments transactions, India was behind only Japan and the US in 2017, according to available data.
The evolution of e-money, meanwhile, is seeing some governments and central banks consider cryptocurrencies as a legitimate option.
Sweden is developing a blockchain-based version of its currency, the e-Krona, and Iceland has become the first country to officially allow its currency to be used as electronic money over blockchain. Russia and Venezuela are also working on their own national cryptocurrencies.
Making digital the only option
Another driver of digital payments is to make them the only option for certain transactions.
A good recent example of this is the Egyptian government making digital payments compulsory for public and private organisations.
Egypt’s parliament voted in favour of the E-Payments Act, which regulates cashless payments, in March, with the implementation confirmed by the country’s Minister of Finance at the 2019 annual and spring meetings of the IMF and the World Bank.
The law requires all government organisations, private and public institutions, syndicates, and any other private or public entity to use digital payments for taxes, customs fees, bank loans, insurance premiums and utilities whenever the fees exceed an amount specified by the act or by a decision issued by the Minister of Finance.
As the above examples show, many factors are at play when it comes to driving the uptake of digital payments. This means the businesses and consumers that are ready to embrace a cashless future will be ahead of the curve.