Who Will Bridge the Gap between Online Accounts and Digital Payment Accounts

Currently there are more than 2.9 billion internet users throughout the world. The United Nations International Telecommunications Union had announced that by the end of 2014, the 3 billion internet users mark would be achieved with two-thirds of them being from developing nations. ITU had also disclosed that mobile-broadband penetration is reaching the 32% mark with the number of subscriptions poised to reach 2.3 billion globally.

The 3 billion internet user base poses demand for downloads pertaining to music, videos and books; demand for online payments and commerce activities. Even offline, they would want to use mobile payments. But are these trends really bringing addressable changes in the market. The total global addressable market size is approx. 3 trillion transactions a year, valued around $13 trillion (source: Accenture report). The extent and pace of displacement of transactions to digital platform needs to scale to support mass volumes. We don’t have as many payment accounts as of today; in fact, there is a gap of about 80%.

With the target population for digital payments being in range of billions, are the payment service providers capable of fulfilling the wishes of such a large audience. Consider PayPal for instance; the company saw the number of active registered users grow from 84 million in Q1 2010 to 150 million in Q2 2014 (source: Statista). The growth rate here is not even at par with what is expected by the target market. Other digital payment experts like Square has over 3 million wallet users, Dwolla services over 25000 merchants, nonprofits and government agencies, Google Wallet has a user base of 10 million (many of them not being that active), ClickandBuy has 13 million active users, Braintree has 71 million registered card users.

Digital downloads have been showing a steady rate of growth. As per a joint report by HIS and App Annie, the global spend on digital media downloads surpassed $57 billion in 2013, up by almost 30% from 2012. According to the report, U.S. has always been a powerhouse in this regard but there are other markets as well which portray immense potential. The South Korean market has per capita digital spend on a higher scale than U.S. or U.K. as it is one of the strongest online music market. Certain growth factors attributed to the rise in digital downloads are increased device adoption, popularity of gaming apps and wide-scale deployment of high-speed networks.

Globally more than 2.5 billion adults do not have formal bank accounts, most of them being from developing nations (source: ITU). Mobile money can be a game changer to curb the low levels of financial inclusion especially when it to conducting micro-transactions and remittance services. Countries like Kenya have witnessed revolution in mobile banking through services like ‘M-PESA’ which witnesses around $375 million worth of transactions each month.

There is a shifting landscape when it comes to digital payments. The rapid adoption of devices by consumers to manage their daily lives is also driving demand for shift in the way they interact with their banks and retailers. It can be said that payments are at the forefront of digital migration in commerce and banking domain. The shift towards digital payments is witnessing certain trends like:

  • Contacless adoption: contactless transactions enabled via technologies like NFC as differential methods of payments.
  • End-to-end purchase integration: seamless operation of pre and post purchase activities like search, comparison, selection, payment and rewards.
  • Retail innovation: omni-channel retailing where consumers can switch between channels such as mobile, internet and stores. Also, the advent of retailer apps for mobile payments.
  • Mobile POS solutions: serve micro-merchants and transform payments at POS. For example, accepting payments anywhere via mobile.
  • Cloud-based payment solutions: use of mobile and internet applications to store payment information for re-use while making repeated purchases.
  • Real-time payments: immediate availability of funds with real-time authorization and guarantee of funds.
  • Micropayments: migration of small cash payments to electronic platforms.

Banks won't be the ones to fill this gap. These new customer communities will go to disruptive startups and fintech elephants who can dance. It is the fintech players, telecom players to small and nimble technology players, that will set increase the pace of digital banking and fill the user gap.

Or perhaps the winner is going to come from the technology industry - maybe Apple or Amazon. Apple has 800 million cards on file and Amazon has 220 million cards on file. We are watching very carefully what apple announces on Sept 9. Apple has already brought innovation in the form of touch ID, Passbook; has filed numerous patents & it is believed that it might launch its own wallet soon.