Seven years ago, I was working on starting a contactless payment company, eager to see the world take on digital payments, and creating a business plan that would ideally result in ubiquitous adoption in the late 2020s. Little did I know that an external force would fast-forward our business plan and blast us through some of the obstacles we were anticipating. The shift was sudden, it accelerated quickly, and I believe it’s safe to say it will be permanent.
Digital payments seemed like a softball solution for many people when they were faced with a world that had to be temporarily “distanced,” “contactless,” and “work-from-home” (or don’t leave your home). They gave people access to goods and services that would probably have been inaccessible otherwise. Merchants have now realized that they’re getting paid faster and taking on less risk than when they handle cash or cards. The convenience factor with this transformation can’t be understated.
A New Kind of Access
Developing nations have been the quickest and broadest adopters of these new forms of payment, and it has provided unprecedented access and freedom. In many places, cash isn’t always readily available. Banks aren’t always open on regular schedules, or geography prohibits citizens from getting to their financial institutions. However, technology has spread like wildfire across the entire globe, offering many individuals a litany of new opportunities to interact with and secure their money.
Sub-Saharan Africa opened 43 percent of the new mobile money accounts initiated in 2020. M-PESA was one of the first mobile payment applications out there, and now it’s making 15.2 billion transactions a year for 49.7 million people. Even countries with smaller economies, like Argentina, have over 30 digital wallets that all communicate. By contrast, when you’re using Paypal and Venmo in the U.S., both parties have to have an account with the same provider; in other places, these types of accounts are often interoperable. It has democratized the way people can pay each other speedily. Many of these payments are going through instantaneously rather than through laborious ACH or credit card systems in the U.S., which can take days.
Cryptocurrency is also providing a way for the world to change how they see, store, and use their money. Residents of countries subject to a high level of inflation fluctuation can now convert their money into cryptocurrency, which protects its value.
Barriers to Entry
The leeriness isn’t gone. Though optionality has vastly expanded in the last few years, which is exciting for innovation and choice, this optionality has also fragmented the space. Federal regulations unique to the U.S. further slow the process of getting these applications to a point where they can “talk to each other.” The time it takes from idea to implementation for instantaneous money transfers, which are already in use in Europe, drags on for years due to federal bureaucracy.
Even though the pandemic set us on an irreversible track toward a digital future, some people are still hesitant to drink the Kool-Aid. Privacy breaches in the news often cause people to wonder whether their data is the next to be compromised. The rise in options also gives people pause – in the face of all these choices, how do I know which ones I can trust?
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The World Is Getting Smaller
The acceleration of digital payments will only continue. The internet enabled the world to connect in terms of sharing data and information, but the global pandemic may be responsible for pushing us into the future of a quicker, more straightforward form of money transfer. It’s becoming increasingly common (and increasingly easier) for companies to hire and contract people worldwide to get the job done. Though security and privacy concerns exist and should be respected, these digital payment methods will do worlds of good in helping people stay connected and pay for goods and services quickly and efficiently.