Macro Drivers for Electronic Payments
We continue our series on electronic payments in emerging markets.
The use of electronic payments – including debit, credit, prepaid and Automated Clearing House (ACH) and person-to-person (P2P) – is growing exponentially around the world. Whether consumer-to-business (C2B) or consumer-to-government (C2G), consumer adoption of non-cash instruments for the entire spectrum of purchases and disbursements is clearly taking off. Young adults in most markets are already very comfortable making cashless purchases, and demographic trends will continue to drive further adoption moving forward. Along with changing demographics, three drivers will be instrumental in accelerating the growth of electronic payments in emerging markets. Today, we look at one of these drivers.
The Growth of the Middle Class
As history has shown, as a middle class emerges, increased purchasing power follows – creating the need for a more advanced payments infrastructure. Continued economic growth across the developing world, even during the global recession, has resulted in the emergence of an enormous new group of middle class consumers that has access to electronic payment options – and has quickly become accustomed to using them in a variety of ways.
As a result, traditional brick and mortar stores will experience growth in credit and debit card usage at the point of sale. Debit card usage at the POS is currently extremely low relative to total debit card spend (3.5 percent, in India, for example), but this will change as merchants in developing markets seek to better meet the expectations of the emerging middle class.
Debit cards are projected to grow more quickly than credit cards, particularly in markets where credit risk is high. In India, issuers shifted focus to lower-risk debit cards, reducing the banks’ risk of bad debt while providing a better method for consumers to control their spending.
Technology and the internet are the biggest opportunities for the traditional acquiring model in Asia Pacific and other fast-growing economies. As income increases, online spending will continue to rise accordingly. The most innovative eCommerce companies will succeed by meeting changing consumer needs with the widest possible range of payment options.
With governments trying to drive e-payments through consumer spending, the middle class is more willing to spend electronically, which in turn drives more transactions at both retail locations and on the internet.
Over the next couple of weeks, we’ll look at the two additional drivers of electronic payment growth in emerging markets.