Over the past few years, digital payment transactions have witnessed an astronomical surge in emerging markets, driven by the proliferation of innovative technology trends in payment systems. Contactless payments and the convenience of e-wallets gained traction, while real-time account-to-account transfers became increasingly popular.
To seize untapped potential and cater to underserved populations, industry players in Africa and Southeast Asia experienced some of the fastest growth in digital payment solutions. Noncash retail payment transactions in emerging markets had grown at a CAGR of 25% between 2018 and 2021, outpacing the global average.
Due to this growth and the resulting competition, payment providers will examine the challenges and develop strategies to capitalize on the abundant opportunities for capturing a more significant market share. Let's explore the insights and strategies necessary to unlock the true power of digital payment solutions in the emerging market.
Challenges for Digital Payment Solutions in Emerging Markets
Lack of Interoperability
Today, as the demand for digital payment solutions rises in emerging economies, the absence of interoperability hampers the growth and adoption of these solutions. Customers are often burdened with maintaining multiple wallets associated with a specific payment service provider. This fragmentation inconveniences users and restricts their purchasing ability at merchants accepting different wallets. To address this challenge, industry stakeholders, regulatory bodies, and technology providers must collaborate to establish interoperable standards and frameworks that promote seamless transactions.
Lag in Regulatory Changes
Although specific regulatory changes have been implemented to support mobile money and QR transactions, other regulations continue to impede the adoption of mobile payment services. For instance, low wallet limits hinder potential use cases such as remittances and business-to-consumer (B2C) payments like disbursements. Additionally, limited awareness and unclear licensing and regulations for non-bank players issuing cards and wallets further contribute to merchants' and service providers' slow uptake of these instruments.
The Scarcity of Value-Added Offerings and Innovative Applications
Currently, these countries' mobile financial services and wallets primarily revolve around standard services such as mobile recharge, utility bill payments, and fund transfers. Service providers need to unlock the full potential of digital payments by introducing novel financial services on their platforms. Digital payment solutions can cater to a broader spectrum of needs and drive greater adoption in emerging markets by expanding the range of offerings to include affordable credit options and loyalty programs.
Cybersecurity Threats and Technical Failures
Cyberattacks have become increasingly common, resulting in substantial financial losses globally. For instance, the 2019 Capital One data breach disclosed the personal and financial data of over 100 million customers, highlighting the vulnerability of digital payment systems to cyber threats.
Technical glitches and system failures can also hinder the smooth functioning of digital payment systems. Instances such as the PayPal outage in October 2020, and the Cash App and Square outages in January and March 2021, respectively, resulted in disruptions for users and merchants, impeding transactions and causing inconvenience. Technical failures, though unintentional, can lead to financial losses and erode trust in digital payment solutions.
Harnessing Digital Payment Opportunities in Emerging Markets
Digital Payment Trends Continue to Rise
The COVID-19 pandemic accelerated the shift from cash to contactless payments. In contrast, the expanding e-commerce sector and government initiatives for cashless payments further fueled the adoption of digital payment solutions in emerging markets. Additionally, investors' interest in the fintech industry led to the rise of payments-focused startups. For instance, BNPL services gained traction in the APAC region as a notable digital payment trend, diversifying the payments landscape by providing consumers with alternative payment methods and enabling businesses to drive sales and enhance customer satisfaction.
Digital Currency Developments
Blockchain-powered fintech, including cryptocurrencies and non-fungible tokens (NFTs), offers decentralized exchanges that facilitate transaction flows, even amidst macroeconomic pressures on fiat currencies. Despite the global bear market, emerging markets are leading in cryptocurrency adoption, with lower-middle-income and upper-middle-income countries prominently featured in the Global Crypto Adoption Index.
With over 100 CBDCs in development worldwide, African nations have levied taxes on digital transactions to expand their fiscal reach and encourage formalization. These developments reflect digital currency's increasing relevance and potential in transforming the digital payment landscape in emerging markets.
Proactive Cybersecurity Advancements
Among the innovative technologies shaping the landscape are behavioral biometrics, device fingerprinting, open banking infrastructure, encryption, two-factor authentication, incident response, cyber insurance, and cloud security solutions. These measures help detect fraud, secure transactions, protect sensitive data, and mitigate the financial impact of cyberattacks. With the escalating threat landscape and increasing reliance on digital payment solutions, leveraging these cybersecurity advancements becomes crucial for safeguarding transactions and fostering trust in emerging markets.
E-Wallets Spearheading Innovation and Value-Added Offerings
E-wallets are expanding their services beyond traditional payment solutions and venturing into bill payment, merchant services, remittances, investment and wealth management, lending, insurance, and lifestyle services. They aim to be a convenient destination for consumers, providing a wide range of financial and lifestyle services in one place.
Additionally, e-wallets integrate comprehensive payment solutions, such as universal payment acceptance and loyalty programs, to enhance merchant services. With the potential for cross-border transfers and blockchain applications, e-wallets continue to drive innovation and reshape the digital payment landscape in emerging markets.
Seize the Moment: Unlock the Power of Digital Payments for Limitless Possibilities
As these markets embrace technological advancements and witness a surge in digital adoption, there is immense potential for unlocking new growth and financial inclusion avenues. However, it is crucial to address the challenges of this transformation, such as cybersecurity risks and regulatory frameworks. While challenges remain, the opportunities presented by digital payments in emerging markets are vast. By embracing e-wallet innovation, proactive cybersecurity, collaboration, and a customer-centric approach, stakeholders can unlock the true potential of digital payment solutions. In this ever-changing landscape, those who capitalize on these opportunities will undoubtedly be at the forefront of a transformative and inclusive financial future.
MobiFin’s robust and secure platform empowers MNOs, banks, and financial institutions to create their customized digital ecosystem powered by advanced security features, optimized cost efficiency, and flexible deployment options. Reach out to us today and revolutionize your financial services.
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