Business Insider Finance Transformers RoundtableApril 9, 2021 | By Ari Sarker
This article was originally published on Business Insider.
- We asked four executives from Airwallex, Klarna, Mastercard, and PayPal to discuss the massive shift toward digital payments in 2020.
- Here's what's in store in 2021, according to these four payments experts.
- Because of their work, Insider named these experts to our annual list of the 10 leaders transforming finance.
- Visit Insider's Transforming Business homepage for more stories.
The adoption of digital payments massively accelerated in 2020, largely out of necessity. Consumers and merchants alike opted for touch-free ways to pay — like contactless cards and mobile wallets — in lieu of handling cash.
And experts expect many of those habits to stick in 2021.
Online spending played a huge role in the shift away from cash, with e-commerce representing 14% of total retail spending in the US in 2020. That's up from 11% in 2019, according to the US Census Bureau. Globally, e-commerce sales grew 28% in 2020, according to eMarketer, with standout countries like Argentina and Singapore seeing 79% and 70% growth, respectively.
But in-store, too, consumers are increasingly opting to pay using their phones and contactless-enabled cards. Other methods, like QR codes, are also catching on.
There was also a move away from credit cards last year. Increasingly, consumers pay with debit cards or interest free installments. And all these trends benefit payments players, who earn revenue every time a consumer opts to check out cash-free.
Insider asked four payments experts at Airwallex, Klarna, Mastercard, and PayPal how they're strategizing for the continued rise of digital payments in 2021.
Insider: Digital payments globally have experienced exponential growth in 2020, do you see that growth continuing in 2021?
Camilla Giesecke, chief expansion officer, Klarna: Yes, it's obvious that digital payments are here to stay and that their importance will continue to accelerate. During the last year consumers have rapidly had to adapt and change previous payment and shopping behaviors; ranging from using more contactless payments in store as a safer payment alternative to doing more of their everyday shopping online.
This shift is evident across demographics, with especially older generations having had to adapt to a new reality, as well as in new retail sectors. As consumers are gaining trust and confidence in these new payment and shopping experiences and they have become so well established, I am certain we won't return to pre-pandemic patterns and behaviors. We also saw our retail partners fast-forward their online shopping services to meet this consumer demand.
Mark Britto chief product officer and executive vice president, PayPal: We don't expect this trend to slow down anytime soon. We've done a number of studies where most consumers state they will continue to shop online at their current elevated levels because it is more convenient, easier and saves time. Retailers have started to adapt to meet these growing demands by enhancing their infrastructure to support new digital payment options like QR Codes, Buy Now Pay Later solutions and more. We've really only seen the tip of the iceberg in terms of digital payment adoption and usage.
Ari Sarker, co-president, Asia Pacific, Mastercard: Today, 3 out of 4 in-store Mastercard transactions in the Asia Pacific region are touchless: in fact, more than 80% of contactless transactions today are under US$25, a range formerly dominated by cash.
Like muscle memory, many of these changes - and drivers of digital payments growth - such as e-commerce, touchless payments and aversion to cash will persist as consumers and merchants adopt a "digital first" mindset.
Lucy Liu, cofounder and president at Airwallex: To continue this growth momentum however, we will need to continue to find innovative products and solutions in digital payment. While COVID-19 has encouraged people to embrace digital payments, many businesses still find international payments expensive, time-consuming and confusing.
Our purpose at Airwallex is to address those pain points and help businesses operate anywhere, anytime. With new technology and startups being introduced to remove these barriers, digital payments are only going to continue growing rapidly.
The need for businesses to plug into digital solutions and make payments seamless is more important than ever, how are your businesses gearing up for this?
Giesecke: We see that today's consumers demand intuitive, personalized shopping experiences and the ability to shop anytime, anywhere, and from any device in a manner that works for their budgets and lifestyles. They expect flexibility, transparency and control in their payments, which are better customized to their individual needs and consistent across offline/online experiences. We provide retailers with a competitive advantage in this space. In light of the ongoing pandemic, our offering is even more relevant as retailers across verticals have shifted their focus to a strong online presence to keep consumers served and engaged, and we continue to invest in products and services to support this demand.
And while the online space has dominated the retail industry in 2020 and to a large extent still does, the demand for safer contactless payments in physical stores has also increased rapidly, so we accelerated the roll out of our in-store services to support retailers and consumers.
Britto: To meet [consumer] demand, we're actively enhancing our digital wallet so consumers can access and manage their financial lives simply and securely from one location. For example, we're strengthening our digital wallet with an enhanced payments hub so consumers can pay their bills and manage their subscriptions, like gas and tv bills or monthly subscriptions, all in one place. We're also building a richer rewards hub so customers can leverage their rewards at PayPal's nearly 30 million merchants. And we're developing more financial services for consumers like savings vehicles, investment tools, and enabling crypto.
The merchants we serve will all benefit from this expanded consumer functionality because consumers will in turn be using PayPal to transact at their businesses directly.
At the same time, we're continuing to build our merchant solutions to help businesses meet these new consumer digital demands. We've been adapting our tech infrastructure and platforms to scale globally. Our software releases were up 26% last year over 2019 alone.
We've released new products like Pay in 4 – also known as Buy Now Pay Later, which has already seen 2.5 million plus consumer transactions at more than 230,000 unique merchants. The re-use rate for US users in the first 3 months from the launch of Pay in 4 was over 40%, proving to not only help merchants increase conversion, but also build customer loyalty. We've seen similar successes with the introduction of QR Codes, business profiles on Venmo and other new products we've brought to market at rapid pace over the last year.
Liu: The pandemic has forced a shift in the business environment -- major structural and systematic changes that typically took decades to materialize became the norm in only a few months. With more businesses now operating online, Airwallex has been at the center of this evolution by providing a "one-stop-shop" for seamless cross-border payments, collections, FX, and other value-add solutions for SMEs, as well as an API for larger businesses requiring customization.
As an infrastructure-first company, we have built our proprietary technology from the ground up, ensuring that our tech platform is fast, relevant, and agile. This means having the ability to scale quickly to support our customers' growing needs. In the last 12 months, we've added more products to our suite than ever before in response to growing customer demand.
Sarker: With commerce going digital at an incredible pace, the benchmark is now speed, convenience, and choice. Here are some of the ways we're supporting consumers and businesses.
In markets like China, Indonesia, India, and Vietnam, consumers are leapfrogging technologies by going mobile first for payments.
To address this need, we're activating consumers on mobile-first, digital-first platforms that enable online card applications, customized benefits and near-instantaneous approvals and issuance, meaning people can make purchases via their smartphones, watches or any digital device immediately. Doing so gives the card issuer a higher chance of becoming top of wallet. An early example is the GrabPay card, Asia's first numberless card that we launched with Grab in 2019.
With the acceleration of digital commerce, there's still a massive opportunity to further infuse digital payments into everyday experiences and activities. Things like smart mirrors in-store using AI, grab-and-go kiosks leveraging QR codes and computer vision, smart speakers, wearables. As these technologies become smarter and more common, we're empowering retailers with these types of solutions that will help them to bridge the physical and digital worlds to deliver omnichannel retail experiences that allow shoppers to come and go from any point – in-store, on their mobile or tablet.
Merchants of all sizes need to revolutionize to manage through evolving consumer preferences. We're supporting their transformation with a full range of digitization tools to give them access to capital, to pay and get paid, and protect their businesses from fraud and cyberattacks.
One that I find very exciting is how we're enabling payment-acceptance capabilities on merchants' own connected devices. Instead of relying on dedicated hardware, any merchant – including micro-SMEs – will be able to use software solutions delivered into their smartphone, tablet or laptop. Placing point-of-sale (POS) technology in the hands of all sellers – from multinationals to mom 'n pop shops – will give them the freedom to take a range of payments without the cost and maintenance of specialized hardware. Last year in India, we launched the first financial payments service in the country to transform smartphones into merchant terminals. The merchant community can start using the service almost instantly as the online registration process with the acquiring bank takes less than 30 minutes. This is a game changer as it decouples transactions from cash and cash registers, and keeps a record of transactions which is critical for helping merchants to secure credit.
Another way that we're helping merchants to plug into digital solutions is by working with partners to enable installments via credit cards, debit cards, and bank accounts across in-store and online merchants. With its fast-rising and digital middle class – plus more than half of the world's consumer borrowing – the Asia Pacific region presents major opportunities for merchants, fintechs, and lenders that offer shoppers the flexibility and convenience of spacing out payments on TV sets, appliances, and other bigger ticket items. Mastercard research shows 43% of consumers in the APAC region would be willing to increase spending by at least 15% if they were to pay in installments. In December 2020, we announced with India's Pine Labs that we'd be expanding our "pay later" partnership in five more countries in Southeast Asia to offer this choice and the flexibility of zero-interest for consumers.
Insider: In each of your respective regions, which payments trends/consumer behaviors are unique? How has that shaped your offering?
Giesecke: Across all our markets we are seeing that the major structural shift from credit to debit is accelerating, and the pandemic has only made the need for more consumer-friendly payment methods even more apparent. In the US alone, NY Fed reported that credit card balances are $108 billion lower than in 2019, and this is the largest yearly decline in the history of the data. It's obvious that consumers are moving away from high-interest rates and revolving credit lines, demanding greater control of their finances, simplicity, and flexibility and our offering is gaining in relevance every day.
Live shopping is also growing in popularity, where consumers can be reached online in a more direct and personal way through live streaming services, social media, celebrities, and influencers. While the livestream market in China is expected to hit $125 billion this year there is a lot of untapped potential for this service in Europe and the US. We have successfully launched live shopping events in both the US and Sweden supporting retailers who are looking to innovate and meet new consumer needs and preferences.
Britto: We have operations in over 200 markets globally and each market has different consumer habits along with different requirements for businesses as it relates to compliance, regulation, currency, and more.
For example, in China, where we are the first foreign PSP, there is already a widespread consumer adoption of technology like QR Codes to make payments. But in the US, while we've seen significant traction of QR Codes among consumers, there is still a great deal of education and familiarity that needs to happen before we can expect to see it become fully mainstream.
We are also focused on markets in LatAm like Mexico and Brazil that have unique consumer financial behaviors. In Mexico for example, they still have a very large unbanked population of more than 40 million consumers, however, ecommerce has been growing consistently there at 20% year over year. So while cash and cash-linked payment methods like Oxxo still form a significant share of payments, we see wallet and digital payment growth as a continuing secular trend in that market.
The variety in every market is where our global reach and scale comes in handy. While each market has unique needs, there are also a lot of similarities. We can test and learn in one market and more easily expand that product to different markets without having to create a go-to-market strategy from the ground up.
Liu: The global pandemic saw a mass migration from physical offices to a working-from-home environment. More recently, organizations - particularly in markets like Hong Kong and Australia, where lockdowns have been lifted - are trialing a hybrid working model (whether that be 100% remote, working in a physical office or a combination of the two).
To help businesses manage cash flow and expenses for a more remote workforce, we launched our multi-currency Visa virtual cards, first in Australia and then the UK. We plan to gradually roll out this product next in Hong Kong and across the rest of Asia. It is one of many new innovations to realize our growth strategy of new customer verticals, new products, and new markets.
This solution allows businesses to create dedicated virtual cards with secure logins for different teams and employees. Virtual cards can be used to pay subscriptions or suppliers with market-leading FX rates (paid in the local currency), saving businesses both time and money on conversion fees.
The solution also allows businesses to create individual virtual cards for employee expenses. Staff are empowered to make their own purchasing decisions, while managers stay in control with visibility over spend and real-time transactions.
Sarker: Two payments trends in Asia Pacific stand out for me. On the consumer side, it's digital wallets. On the ecosystem side, it's real-time payments (RTP). Both of these trends are driving the shift away from cash utilization (which remains widespread across most of Asia) to digital forms of payment.
Contributing to this uptake is the fact that, compared to other parts of the world, Asia's consumers are especially enthusiastic about adopting new technologies, with 54% having already used e-wallets or facial recognition technology for payments versus around 25% in Europe and North America. Against this backdrop, cash utilization fell from 97% of transactions in 2010 to 71% in 2019, even before the COVID-19 crisis.
Meanwhile, in recent years, digital wallets have grown at a rapid rate to more than 150 providers across the region. Southeast Asia is a particular growth area. In Indonesia, there are close to 50 digital wallet providers competing in that single market. According to the Mastercard Impact Study 2020, Malaysia now has the highest mobile wallet usage in Southeast Asia at 40%, just ahead of the Philippines at 36%, Thailand at 27% and Singapore at 26%.
Today Mastercard works with all major wallet providers including Apple Pay, Google Pay, Samsung Pay, Fitbit Pay, and many more, providing wallet tokenization to ensure security in addition to facilitating transactions. This space is a natural fit for us as it allows us, again, to enable greater choice, fosters financial and digital inclusion in Asia's economies, and supports SMEs and governments to digitize.
On the ecosystem side, we're seeing the dramatic rise of RTP which are a critical element of nation building as governments in AP focus on boosting digital infrastructure and financial inclusion. Today, India is the global leader in RTPs, with 41 million transactions per day in 2020, more than double the number for 2019. Alongside India, China, with 38 million RTP transactions per day, and South Korea at 75 million (world's highest per capita), make up the global top three.
With our Vocalink assets, we are supporting a number of governments in the AP region to marry the best of Mastercard's card network, rules engine, and governance framework to create the next level of growth in RTPs. We're seeing very significant volumes and huge velocity driven by small ticket items and the gig economy. The next challenge is connecting Asia Pacific's many domestic RTP systems across borders.
Insider: How will the proliferation of digital currencies change each of your businesses?
Giesecke: We don't have any current plans to enable digital currencies as a form of payment as it is not (yet) in high demand for the majority of our users. We're focused on solving problems in the retail banking and payment industry by providing consumers with simple, convenient and cost effective ways to shop, pay, and bank.
Britto: We're really excited about the potential that digital currencies offer. Last year we introduced the ability for PayPal customers to buy, hold, and sell cryptocurrencies in their digital wallets, and this is only the first use case for crypto and digital currencies at PayPal. The early results have exceeded all our initial expectations and the daily users of the crypto service continues to grow rapidly.
This year, we will be increasing access to crypto and digital currencies to more customers around the world and we will be enabling crypto as a funding instrument for transactions at millions of businesses around the world.
Ultimately, our crypto services will help broaden the range of financial services offered through the PayPal and Venmo apps, supporting the transformation of those apps to being "destination apps" for commerce and financial services.
Liu: We certainly recognize that digital currencies are growing in importance globally. The fact is, however, that small and medium-sized businesses are dealing with multiple parties across their supply chain, many who continue to rely on cash assets, but are needing to find more effective ways to transfer funds.
While it doesn't impact our business as we do not support digital currencies, we'll definitely be watching this trend closely.
Sarker: For digital currencies to become trusted payment instruments, it is essential that they offer these three things: stability, regulatory compliance and consumer protections. For digital currencies that adhere to these principles, we will support them because this aligns with our long-term multi-rail strategy.
In fact, for several years Mastercard has been working on cryptocurrency, distributed ledger, and blockchain initiatives. With 89 blockchain patents granted globally, and an additional 285 blockchain applications pending worldwide, we already have one of the payments industry's biggest blockchain patent portfolios which spans our entire business ecosystem.
In February, we announced that Mastercard will start supporting select cryptocurrencies directly on our network. We're also in active discussions with many central banks around the world, including in the Asia Pacific region, as they review plans to launch new central bank digital currencies - or CBDCs - to offer their citizens a new way to pay. Last year, we launched a test and learn platform for these banks to use these currencies in a simulated environment so that we can support them once governments are ready.