Digital payments create investment opportunities

The ongoing digitisation of payment transactions is reaching more and more sections of the population, including in developing countries. This opens up attractive earnings prospects. Among other things, this analysis shows which sectors are in a good starting position in this regard and where potential risks lie.

Three key insights

Populations in developing countries are also benefiting from the advancing digitisation of payment transactions.

Consumers prefer digital payment methods, thereby driving innovation in this area.

Growth forecasts for earnings are in the high single-digit percentage range. The focus is primarily on the Asia Pacific region.

Populations in developing countries are also benefiting from the advancing digitisation of payment transactions.

Growth forecasts for earnings are in the high single-digit percentage range. The focus is primarily on the Asia Pacific region.

Consumers prefer digital payment methods, thereby driving innovation in this area.

Digital payment is increasingly supplanting cash

The outlook until 2025 for these payment methods points to a transformation. Although cash is expected to continue to account for a significant share of payments overall in 2025, its relevance is trending downwards worldwide. The largest declines in cash transactions are anticipated in South America, the Middle East/Africa and Europe.

Digital wallets on the rise

At the same time, according to forecasts, digital wallets are gaining in importance everywhere as a method of payment. Debit cards are also increasingly being used in the Middle East and African countries (MEA), as well as in North and South America. The use of credit cards is popular in Europe, MEA and South America. What's more, in regions such as North America, debit cards are likely to replace credit cards, so that the net effect of plastic card use will remain neutral there.

Payment methods by region until 2025
2021 Europe Asia-Pacific MEA North America South America
Debit Card 38 % 14 % 14 % 34 % 25 %
Cash 17 % 8 % 31 % 6 % 24 %
Credit Card 23 % 17 % 22 % 36 % 32 %
Mobile Wallet 15 % 56 % 21 % 15 % 15 %
Bank Financing 4 % 3 % 6 % 4 % 4 %
Buy now, pay later 3 % 1 % 1 % 2 % 1 %
Prepaid Card 2 % 1 % 4 % 4 % 1 %

Source: The Global Payments Report (2022)

The global revenue pool – forecasts

The increase in digital payment transactions combined with the decline in cash use has so far led to growing revenues for digital payments. Forecasts continue to show an upward trend. The biggest growth is anticipated in Asia Pacific (APAC).

Source: The 2021 McKinsey Global Payments Report

What fills the global revenue pool

The reasons for the growth in income from payment transactions are generally due to global economic growth. The coronavirus pandemic also boosted online commerce and, consequently, digital payment methods. Other reasons for the future increase are:

  1. Advancing digitisation is enabling more and more companies to offer payment transactions directly and easily on their own platforms.
  2. Banks and financial institutions increasingly see payment transactions as a strategic component.
  3. The use of digital currencies is becoming more important.
  4. Supervisory bodies prefer global regulatory standards. For example, the EU Payment Services Directive PSD2 creates uniform regulations for payment transactions throughout Europe.
  5. Industry consolidation in payment transactions has risen. Merger and acquisition activity in the fintech sector has been lively for some time.

Risks for society and digital payment providers

The digitisation of payment transactions simplifies transactions for users. At the same time, for instance, cybersecurity risks are increasing. This applies not only to end customers, but also to providers of digital payment methods. Cybersecurity risks also pose the greatest operational risk, followed by regulatory risks. Regulators can significantly change the attractiveness of digital payment methods and their market.

Source: Capgemini Financial Services Analysis (2020)

Conclusion

The estimated growth rates for digital financial services in the coming years are in the high single-digit range. Regulatory changes can affect the profitability and growth rates of business models, both positively and negatively. What's more, cybercrime is also keeping pace with digitisation. An evaluation of opportunities and risks in the digital payment sector must therefore always be complemented by fundamental analyses.

How much growth potential is granted to the digital payments market and which sectors are favoured? Read the full study.

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