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The Digital Payments Revolution
We think there are several secular tailwinds contributing to the massive ongoing shift toward digital payments. First, we’re seeing rapid growth in e-commerce, which requires that customers be able to make secure, digital payments. The growth in cross-border transactions and the general impact of an increasingly globalized marketplace are helping accelerate this trend. Second, technological innovations that simplify cash transactions—such as Square and Uber, as well as point-of-sale devices in areas they’ve not historically been, such as taxis, vending machines, parking meters, etc.—are helping drive digital payments growth.
A third factor has been emerging economies’ growing push to bring their populations into the formal economy. One way this has manifested itself has been deliberate attempts on the part of some governments—most notably and recently, India’s—to demonetize their economies. The move toward digital payments not only brings those consumers into the formal economy, but they can also be faster, more efficient and ultimately, more secure. A final factor has been the growing volume of global travel, which is simpler when transactions are facilitated digitally as opposed to in cash.
Emerging markets are particularly ripe for digital transactions given many of their financial systems are relatively immature. One advantage emerging markets sometimes have over their developed-world peers is their ability to “skip a step” from a technological progress standpoint. The area of online payments is a good illustration of this phenomenon. Many emerging markets economies remain underbanked—or even relatively unbanked altogether—complicating transactions, whether online or in person. The advent of digital payments is revolutionizing the way in which consumers globally can purchase goods and conduct business.
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