How digital payments are disrupting our entire ecosystem

Propelled by the shift in consumer behavior spurred by the pandemic, our adoption of contactless and digital payments has accelerated economic change in tangible ways, providing enhanced traceability, accessibility and security both at home and in developing countries far and wide. Market conditions have been further stimulated by expanded access to mobile devices. With a majority of the world’s population owning a smartphone today – 86.41% according to Statistical in 2022 – this will further enable the global rise in digital payments, which is expected to increase approximately annually 15% in emerging markets until 2026.

This democratization of payments from traditional financial institutions to telecoms, merchants, fintechs, global brands and more has enabled the explosion of the Embedded Finance model and a compounding effect on customers’ financial interactions throughout their digital experience.

Related: Payments Wrap: digital payments in 2022 and what 2023 promises

Building economies and stimulating new business

One of the positive externalities of the pandemic is that people are more comfortable than ever with buying online, be it clothing, consumables or groceries. This willingness to interact in the digital space is no longer limited to the younger generations. Purchasing power is no longer reserved for millennials and Gen Z; it transcends age. It’s not uncommon to see the older generation making online payments, including my 84-year-old father.

As a result of the pandemic, the adoption of digital habits has been born out of sheer necessity. Today, these habits remain sewn throughout our lives because of their convenience. In developing countries, however, the rapid advancement of fintech payments has done more than just make life easier: it has directly contributed to quality of life, empowerment, human security and policy enforcement, where the shift from cash to digital payments is still in its infancy.

The acceleration from physical to digital payments will lead to new digital economies and interactions between merchants and consumers on a local and global scale.

On a recent trip to India, I witnessed firsthand some of the world’s digital transformation. Having last visited India two years before the pandemic, I expected little change. This time, however, I found myself in a small, local flower shop that previously only accepted cash. Today, digital payments have modernized it. Instead of promoting “cash only” signs, most stores I went to now presented me with QR codes and app-based payment options. The flower shop was no different, but now it has a sign urging customers to pay by app.

In a few short years, India’s economy has been transformed by going cashless (aka the shift to digital), and they are not alone. Repeatedly, developing countries around the world have made their way to digital payments, slowly transforming gray economies with huge income inequality into more transparent, trackable and manageable ecosystems. A symbiotic relationship has developed between the private and public markets, enabling competition, economic growth and choice for consumers, while encouraging traceability and accountability for governments and regulators.

It’s also enabled new business commerce and expanded reach for new gig workers – all through the power of your smartphone and digital payments, now embedded directly into your customer experience with your brand.

In Latin America, for example, the informal economy is one of the main sources of income for a large part of the population. That is what the OECD (Organization for Economic Co-operation and Development) estimated. about 70% of GDP was not in the formal payment systems and was therefore not monitored by the government in 2018. Now, in 2023, only 36% of POS transaction values ​​will be in cash, according to McKinsey.

As a consumer, you have the ability to search for any product or service through your mobile phone – and as a gig worker, you can have constant cash flow through easy access to consumers and needs. This win-win scenario creates more entrepreneurial spirit for everyone. It can also threaten large businesses as small business owners have easier access and less friction. Brands large and small see opportunities and challenges to connect and build enduring direct relationships with consumers who now have digital optionality everywhere.

Related: How Digital Payments Can Empower SMBs to Become More Competitive in the Post-Pandemic Era

The data behind money

With this ever-evolving scenario, a question comes to my mind: How do companies navigate the ecosystem and merge payments across their business? The answer to that is data.

Bringing modern payments to emerging markets opens up a world of opportunity. By developing a host of microcosms, we can bridge the gap between the various services people need, such as doorstep delivery and carpooling, and the digital solutions needed to enable those instantaneous transactions through new customer experiences and payment flows.

In doing so, companies collect a wealth of data about consumers that cannot be traced or understood in a primarily money-based society. Moving to digital payments gives businesses the ability to follow a consumer from one merchant to another, better understand transaction and behavior patterns, and move to hyper-personalization of offers and products. This helps them understand what services they are looking for (i.e. what they ate at the last restaurant they visited and what products they buy – down to the SKU and size). This data can transform marketing strategies and reshape customers’ journeys with suppliers to drive new offers and loyalty programs in a direct relationship between brands and consumers through their built-in payment flows.

Of course, alongside this data comes the urgent need for payment processors and issuers to manage and use it responsibly. Currently, the payments industry is on track to realize the potential of new microcosms not previously possible, while striking the right balance between consumer consent, reporting and data protection. It is only a matter of time when the power of data will create more consumer knowledge and our respective needs.

Related: India’s corporate spending market is expected to reach $15 trillion: report

Empowering people and delivering commerce

Modern payment solutions not only create ease of use when used correctly. On the contrary, they also improve safety, security and speed at every turn. In addition, the data behind payments may change the way we discover and interact with customers. For companies (small and large) this is an opportunity to create targeted campaigns for consumers, offer services and products easily and globally, create a customer-friendly user environment on their platforms and ultimately grow their revenue and customer base.

How can this be done? The key to ensuring that payments continue to positively disrupt our ecosystem requires the recognition of a fundamental fact:

The power lies with the consumer, who has more choice than ever. Today’s top financial services companies, e-commerce brands and tech startups are leading the way as they focus on becoming better partners for their consumers, making them better suppliers.

The explosion of optionality and digital touchpoints between consumers and brands continues to underline the importance of customer experience, digital transformation and data enablement for brands and merchants. Robust engagement throughout the customer journey for brands will set them apart from consumers looking for a consistent and hassle-free experience from start to finish.

By aligning ourselves with what’s best for the people on the other side of the equation, financial services has the potential to change the world as we know it – and this change is happening right in front of us today.