2023 has been a landmark year in fintech and cross-border payments. The digital landscape has evolved rapidly, propelled by changing consumer behaviors and technological advancements.
The continued decline of cash, the rise of convenient and accessible digital payment solutions, and the increasing significance of wallet-to-wallet transfers are reshaping how consumers interact with financial services institutions. These trends and the simultaneous global demand for faster payments underscore the pivotal shift toward the rapid digitalization of financial services.
2023 witnessed a significant evolution in the payments landscape, further accelerating the transition from cash to digital payments that gained momentum during the COVID-19 pandemic.
Data from Visa's insights report reveals over half of the global population is projected to use mobile wallets by 2025. This year, digital payments and wallet-to-wallet transfers have made sending and receiving money more convenient and accessible. As such, digital wallets have become increasingly prevalent in point-of-sale (POS) transactions, accounting for 29% of them globally.
McKinsey's Global Payments Report highlights that cash usage declined nearly four percentage points globally in 2022, with countries like Brazil and Nigeria seeing the most significant decreases in cash transactions.
The move away from cash reflects a broader comfort with and reliance on digital platforms. As digital payments become more ingrained in daily life, businesses must adapt to this evolving landscape to meet these consumer non-negotiables.
2023 also marked an uptick in domestic wallet-to-wallet transfers, largely fueled by the increasing prevalence of digital wallets. With an array of advantages such as convenience, enhanced security, low fees, and global accessibility, digital wallets have transformed the way consumers handle money. Their growing adoption is evident, with the global digital payments market projected to grow to $111.11 billion by the end of 2023 at a CAGR of 15.5%.
There has been a surge in the number of domestic players launching products that allow users to send funds from one wallet to another. This is making it easier and more convenient for people to send money to friends and family, both domestically and internationally.
For instance, as of 2023, most of America's large banks, including Bank of America and JP Morgan Chase, have launched digital payment wallets. These products allow consumers to make online purchases tied to their credit cards, competing with top apps including Apple Pay, Google Pay, and PayPal.
The surge in the adoption of wallet-to-wallet transfers has prompted businesses to innovate and adapt their products to meet the growing demand for convenient, secure, and fast money transfer solutions. Apple Pay’s Apple Card, Alipay’s expansion to non-Chinese users, and Zelle’s integration with 1,800 banks are just a few examples of this innovation.
The integration of digital currencies into wallets has further expanded payment options to reach a growing segment of tech-savvy consumers interested in cryptocurrency transactions. Peer-to-peer (P2P) transfers, a cornerstone of this diversification, have simplified how individuals exchange crypto funds. They have become a popular choice for splitting bills, gifting money, or even paying for services. This expansion in payment options offers consumers the flexibility to choose how they manage and spend their money.
2023 has seen a significant global shift towards the demand for faster payments, driven by consumer and business needs for speed and efficiency. This is significantly influencing the cross-border payments and remittance services arena as well.
Innovations in the field of cross-border payments have focused on reducing transaction times and enhancing efficiency. Services like Visa Direct and Mastercard Send are at the forefront of this movement, offering expedited payment solutions that significantly cut down on the time it takes for funds to move across international borders. Similarly, the growing adoption of the FedNow service suggests a future where real-time payment processing becomes a global standard.
The cross-border payment sector is also seeing overall growth across various categories, including B2B, B2C, C2B, and C2C payments. This growth is fueled by the increased mobility of e-commerce goods and services and a surge in B2B payments, positioning the cross-border payments industry as vital for the globalized economy. This shift is ensuring that the cross-border payments and remittance services sector is going to become faster, more secure, and cost-efficient.
As we approach 2024, financial institutions (FIs) are facing a transformative period that calls for strategic adjustments to keep pace with the evolving financial landscape. Here are some key considerations:
The rise of decentralized finance and central bank digital currencies
Decentralized finance (DeFi) refers to a new wave of financial services built on secure, distributed ledgers that facilitate the recording of transactions. Its rise signifies a significant shift to peer-to-peer transactions via blockchain.
One of DeFi’s primary benefits is accessibility, particularly for unbanked and underbanked consumers. Anyone with an internet connection can access a DeFi platform, enabling transactions without geographic limitations. As we see more innovation in this sector, we’ll expect it to eventually mirror much of what happens in the traditional banking world, including lending and borrowing. However, DeFi’s current volatility in value may temper short-term adoption.
While DeFi is decentralized, central bank digital currencies (CBDCs), are issued by a country’s central bank, instilling more confidence that they will hold their value. Currently, between 70 and 80 central banks, representing about 90% of the global GDP, are exploring implementing CBDCs. This type of currency promises the speed and accessibility of DeFi with the stability of a traditional currency.
While we expect to see growth in DeFi and CBDCs in 2024, their true impact will likely be felt further out on the horizon. Embedded finance, or the integration of financial services into non-financial platforms however, is a much more near-term, actionable trend that FIs should consider for their 2024 strategy.
From a coffee shop app offering one-click payments to an ecommerce retailer providing insurance options on purchases, embedded finance is already ubiquitous. In 2024, consumers will not only expect to see it everywhere, but they will actively seek it out. Bringing payments, lending, and banking directly into business applications at the right time and the right place enables more functionality and greater flexibility for the user - ultimately building loyalty.
Collaborating with a specialized embedded finance solution provider like Brightwell can allow FIs to embed payments rapidly into their platforms. ReadyRemit provides FIs with the speed and agility needed to deploy embedded rapidly, enabling them to stay ahead in a changing financial landscape.