Consumers are showing a growing preference for contactless payments, which is pushing many regions toward a cashless economy. For example, Pew Research Center notes that 4 in 10 Americans (41%) have stopped using physical cash for weekly purchases, which is nearly double the number in 2015. Not only would a cash-free society make everyday transactions a lot easier for consumers, but it is also bound to reshape the banking and financial services space. As confirmation that the world is migrating to digital-first payments, consider that the global mobile wallet installed base will increase by 2 billion in just 5 years—climbing to a total installed base of 5.6 billion by 2027, according to ABI Research.
In this article, you’ll read about:
- How the COVID-19 pandemic influenced contactless payments.
- The primary benefits of a cashless world.
- Why proximity mobile payment usage is on the rise.
- What market players should do to capitalize on frictionless transactions.
Nothing epitomizes the march toward a cashless economy than the rapid growth in the global mobile wallet installed base, which the chart below highlights.
COVID-19 May Have Changed Transactions Forever
Over the last 10 years, contactless payments had already been ascending steadily to the top of the market. Indeed, consumer appetite has only grown for cashless payment, opting for alternative payment solutions like biometrics, wearables, and cryptocurrency. Around the world, this trend was compounded during the COVID-19 pandemic, giving rise to an enormous increase in contactless payments, notably mobile wallets.
Digital-first payments have taken precedence and there’s no sign this trend is going anywhere. According to a 2021 survey from Visa, 74% of consumers indicated that they preferred contactless payments even with vaccinations being readily available. This changing consumer attitude is the preface of a cashless world and will produce huge ripple effects across the entire payments market, affecting merchants, banks, smart card vendors, and mobile wallet providers.
Benefits of a Cashless Economy
The most obvious benefit of a cashless economy is convenience. Customers no longer have to worry about losing physical cash or running to the Automated Teller Machine (ATM) in order to purchase goods. Digital payments make a perfect marriage with stores as 63% of consumers say convenience is influential in choosing which store to shop at. Making the checkout process as easy as possible is just good business, making mobile payments and other frictionless methods paramount to business health.
Besides convenience, a cashless society will also experience less fraud and other security issues. And the consumer market is in full agreement as a survey from Onbe found that 65% of consumers think digital payments are more secure than other forms of payment. First, the removal of physical money makes it more difficult for robbers to steal from someone. Second, the data within mobile payment solutions are typically encrypted; for example, the online vendor that a customer purchases from will not have access to payment details. Plus, Multi-Factor Authentication (MFA) and biometrics make it impossible for anyone but the correct individual to use the mobile wallet. So, in the event that a smartphone or wearable device is lost or stolen, no one else can make a transaction.
The third, and perhaps the most striking benefit of a cashless economy, is just how inclusive it is. In regions where there’s not a sizable brick-and-mortar bank presence, there is, however, swift uptake in smartphone adoption. Digital payments, notably mobile wallets, allow local citizens to access financial services in a non-hassle and cheap way. In the Middle East & Africa, there’s been developments with mobile money, a form of Pay-as-You-Go (PAYG) that entails money-enabled Subscriber Identity Module (SIM) devices like M-Pesa and Orange Money. Moreover, mobile money, with the help of a Mobile Network Operator (MNO) or a banking network partner, enables underbanked populations to use cashless payments without needing a bank account. These customers don’t have to worry about prohibitive upfront costs and onboarding processes. Ultimately, a cashless society will help a developing economy grow because more transactions can be made within the country and financial services would be available to more people.
What’s Pushing Growth in Proximity Mobile Payment Usage?
The growth in proximity mobile payment usage is primarily driven by convenience for customers and business value for merchants/retailers. Proximity mobile payments enable customers to pay for goods via communication between their smartphone and a Point of Sale (POS) terminal. The customer’s mobile device and the POS terminal need to be within 4 Centimeters (cm) of each other and both devices must support a communication technology like Near Field Communication (NFC), Quick Response (QR), or Bluetooth. However, as seen in contactless ticketing and other contactless payment methods, NFC is the dominant enabling technology.
For merchants and small business owners that can’t afford new POS infrastructure, a phone or tablet can serve as the POS terminal. Alternatively, it can serve as a backup option when the primary POS system is inoperable. That’s why tap-on-phone transactions and cashless economies are so inviting to many small businesses. In a world where, according to Blackhawk Network, 54% of shoppers spend more money at retailers offering digital payments, proximity mobile payment usage lets the “little guy” get in on the cashless trend without hassle. ABI Research expects proximity mobile payment to experience the greatest growth of all sub-categories in the broader mobile payments ecosystem. Proximity mobile payment will find its greatest prominence in use cases where convenience takes precedence, such as parking, transit, and vending machine transactions.
OEMs, Banks, and Financial Apps Look to Capitalize on Cashless Economies
Inevitably, the digital payments market will be broken up into smaller chunks, enabling transactions across myriad platforms and services at the same time, and with a large number of white-label solutions available. As societies shift away from cash, the demand for digitized solutions will amplify. Original Equipment Manufacturers (OEMs) like Apple Pay, Google Pay, and Samsung Pay are experiencing stiff pressure from companies such as Revolut, Monzo, and Curve. At the same time, payment companies like PayPal and Venmo are also major influences in the digital payments space. Besides winning on the User Experience (UX) front, solution providers must recognize that a cashless economy requires wider support for cards, tickets, IDs, passes, and other applications. Companies should also explore partnership opportunities with cryptocurrency providers to store digital assets, while still allowing users to make transactions with traditional currency. An example of this would be Mastercard’s Nexo card, which comes with Apple Pay and Google Pay integration and is accepted by 92 million merchants worldwide.
The most rapid growth for cash-free transactions comes from underdeveloped regions like the Middle East & Africa and Latin America. As previously alluded to in this article, mobile payments are inclusive because they remove a number of previously prohibitive factors. Additionally, the uptake of smartphones continues to increase in underdeveloped regions, whereas more developed regions already have a high level of smartphone adoption and existing banking infrastructure. Countries like Ghana, Nigeria, and Tanzania are all working on digitizing their economies, while mobile money is gaining traction in places like Mozambique, Egypt, and Afghanistan.
To learn more about how to prepare for a cashless world, check out our An Inside Look at the Global Mobile Wallet Market as 2022 Concludes Research Highlight. All you need to do to gain access is register an account with us.
This content is part of the company’s Digital Payment Technologies Research Service.