The digital payments space continued to evolve throughout 2019 and the ramifications are important for the coming year and beyond. Plenty of stories caught our eye over the past 52 weeks, and you should be reading our weekly roundups to keep abreast of the news. However, just looking at individual news items can mean you end up seeing the trees but not the forest.
Reviewing events over the full year, though, some significant stories emerge when you look at everything in context.
Digital currency ups and downs
Digital currencies, aka cryptocurrencies, have remained a hot topic. As payments go digital, so can currency, and there is a battle on now between public and private players to shape the electronic currency landscape.
So much so that Facebook announced its plans to launch such a currency, called ‘Libra,’ in 2020. Many governments have criticised the plan, however, saying it would make illicit activity easier and inhibit their abilities to make financial plans for their economies. Later in the year – perhaps in response to the negative press – PayPal, a prominent partner in the Libra Foundation formed to develop and launch the currency, withdrew from the project. And Mastercard, Visa, eBay and Stripe soon followed.
Regardless of the Libra mess, development of digital currency, especially those backed by central banks (called CBDC), are in the news in many countries. China, a country with several global leaders in the digital payments space, is discussing launching a CBDC. The move is seen as a way for the central government to retain control of monetary policy at the same time as its economy is quickly becoming cashless. Sweden is developing an ‘e-krona’, while Iceland is the first country to officially allow its currency to be used as electronic money over blockchain. Other countries discussing CBDCs are Ghana, South Africa and Rwanda.
Open Banking is about more than banking
Open Banking, legislated into existence by the UK’s Competition Markets Authority, requires the UK’s nine largest banks to make client banking data available to any player, authorised by the client, in a standardised format. The goal is to provide consumers with more transparency into their data and the ability to use any banks or fintechs they wish. The hope is that this will open competition and keep the financial services sector, a major component of the UK economy, relevant.
This is seeing the emergence of ecosystems and lifestyle platforms, where players all work together to create complete, seamless experiences for the customer.
Payments company PayPal, likely looking to provide more value to both partners and clients, acquired price comparison app Honey for $4 billion. Google Pay has expanded its integration of PayPal, allowing users to make payments via PayPal when shopping online or in retail outlets. The trend towards ecosystems has really taken hold in Asia, where Chinese giants such as Alibaba and Tencent are building upon their access to capital, tech capabilities, and scope to enable end-to-end experiences without traditional banks in the mix.
China goes abroad
Those Chinese players mentioned above are not content to stay at home and power only their own ecosystems and lifestyle platforms, though. Earlier in the year, China’s Alipay joined forces with six European e-wallets to provide QR code payments and interoperability. The players – Austria’s Bluecode, Finland’s ePassi and Pivo, Norway’s Vipps, Spain’s Momo and Portugal’s Pagaqui – have agreed to roll out a QR code-based payment format provided by Alipay. This would allow interoperability for the five million users of any of the e-wallets. It would also allow Chinese tourists to make payments when travelling in those markets.
Ant Financial, a division of Alipay parent Alibaba, also expanded by acquisition, purchasing the UK’s WorldFirst, which offers international payments and foreign exchange solutions for businesses. Competitor Tencent, meanwhile, announced its plans to expand the scope of its WeChat Pay.
The establishment struggles to remain relevant
In the face of competition from non-bank players, digital banks and fintechs, established players are struggling to stay relevant. Some, such as Singapore telecommunications company SingTel, are trying to grow their digital payment platforms and expand through Asia. Incumbent banks and legacy payments providers are signing on. At the same time, Singapore’s banks were slow to implement digital payments user protection guidelines mandated by the Monetary Authority of Singapore.
Other legacy players trying to establish themselves in the digital payments space include Indonesia’s Telekomunikasi Indonesia – which partnered with incumbent banks to launch mobile payment platform LinkAja – the Saudi Arabian Monetary Authority, New York-based Citi and HSBC, which launched a trial of its PayMe for Business in February.
Don’t overlook India
It’s easy to get tunnel vision when looking at digital payments. China has grown so quickly in the space and is constantly innovating. With all eyes on the Middle Kingdom, it’s easy to overlook what’s happening with digital payments in neighbouring India. That country’s mobile payments market, valued at $200 million in 2017, is predicted to grow to as much as $1 trillion by 2022. Multiple players – including Paytm, Google Pay, PhonePe, MobieKwik and Amazon Pay – are all vying for a piece of that growing pie.
To help entice merchants into accepting digital payments, the Indian government has banned banks charging retailers bank fees of about two per cent on electronic payments – as long as those retailers have a payments volume of at least 500 million rupees ($7.3 million) per year. The government is also looking to encourage retailers to accept QR-based payments and transactions using the country’s Unified Payments Interface. The Indian government, like China, has implemented protectionist measures for foreign firms operating in India, inhibiting their ability to compete in the country’s digital economy, including e-commerce plays and digital payments.
The last year has been a lively time for digital payments and 2020 shows no signs of slowing down.