Payments space has undergone some rapid changes in the recent past. As per a report published by mobile payments, digital payments are expected to grow at a healthy rate of 17.6%. With such strong growth, expect a surge in innovation by players to capture a sizable market share.
A brief History of Payments
Payments space has evolved over the years. Payment mechanism came in to existence with Barter system. The first actual money transaction happened with coins somewhere in the 10th century. Exchange of gold for product and services came into existence in 13th century. Western Union in 19th century introduced money transfer system. Credit cards are just about to complete a century of their existence in 2020. These credit cards introduced earlier as metal money, are now known as plastic money. Since the 1920s we have seen payment space evolve in bits and pieces with small and frequent innovations introduced in the market. Visa and MasterCard became the pioneers of the payment systems with their consortium. Their focus on innovation revolved around cards and payment processing entities.
Coca-cola introduced the concept of mobile payments in 1997, when users could send a text message and receive their beverage from a vending machine. Further, PayPal pioneered this mobile and internet-based payments and digital wallets. PayPal though was way too early for its commercialization. It was only after the introduction of smart mobile devices between 2007 and 2010, which evolved a real need for mobile-based payments. Mobile started to become that one device that had sufficient computing power and portability. The user base with mobile penetration grew exponentially across the world. However, countries like China, India and Southeast Asia (SEA) have become primary hub of innovation in digital payments revolution. Most users in these countries did not have access to normal banking or financial instruments to cater to their financial needs.
Necessity is the mother of invention
With a huge customer base to target, there had to be many players entering the space. If we look at history, Asian countries looked up to the west for inspiration. Success stories of Chinese and Indian fintech companies, are becoming case studies for the rest of the world.
Some great innovations done by the Asian countries involve Digital wallets, QR code for payments, Face matching, etc. You see QR codes being out up in the smallest of the shops around India. Thanks to these QR codes, you can transact by just scanning a QR code. Chinese companies have been exploring face matching as a means of payments. Using facial recognition as an authentication mechanism, you can perform a financial transactions. Large tech companies like Google are also foraying into payments space.
It would be unfair not to mention the African fintech revolution. Some African nations are yet to reach the infrastructure levels of even a developing nations. However, these infrastructure issues have not limited their innovation. They have innovated well to use SMS and other mediums for fund transfer.
Digital currencies, also popularly known as Crypto-currency has gained a lot of traction. This currency method is not accepted formally by all nations as yet. However, if accepted, this digital currency has the potential to revolutionize the whole banking system. Bill Gates once stated: “We need banking, but we don’t need banks anymore”. Crypto-currency is built in a way to provide banking without banks.
Conglomerates becoming Digital Bankers
Google, Amazon, Walmart and many other e-Commerce organizations are foraying into digital payments space. Every e-Commerce site is using digital wallets as a new means for deep discounting. Along with these e-Commerce companies, some large tech players have introduced their payments solutions too. Google targeted Indian markets using its specialized app called Tez. They also came up with an innovative nearby listening mode, also known as Tez mode. This nearby listening mode allows you to make a payment to anyone without getting their phone numbers. In fact, even Apple has introduced its own card. This payment system from Apple not only supports payments, but it also provides a detailed analysis of your spending in some wonderfully done analytics.
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Almost all major organizations are looking at digital payments as an avenue using which they can know various aspects of their customers. While making payments, all customers end up providing geographic location, item or service bought, financial capability and many other details. Previously this information was hard to obtain, especially in vast countries like India and China. This information can be very valuable in terms of understanding the customer base. Further, it can enable companies to target the right set of customers using this data. Hence, expect more and more digital conglomerates to foray into digital payment space.
Digital Payments has gained so much traction since a financial transaction is inevitable in any commercial transaction. Many companies look up to digital payments as a means for future growth. Won’t be surprising, if digital wallets becomes default offering for all purchasing software.