The global digital payments ecosystem has come back from the pandemic with serious momentum — and in emerging markets, recent growth is especially strong.
The International Monetary Fund bases its definition of emerging markets on “sustained market access, progress in reaching middle-income levels, and greater global economic relevance.” Estimates from PwC also reveal that emerging markets are home to almost 9 out of 10 people under 30, illustrating their expected influence on the next generation of global finance.
Let’s take a closer look at what the growth of digital payments in emerging markets means for today’s expanding businesses.
Where the fastest growth is happening
Research from McKinsey shows that globally, the number of noncash retail payment transactions between 2018 and 2021 increased at a compound annual growth rate of 13%. In emerging markets, that figure is 25%.
So what regions, in particular, are accounting for this sharp increase? Two areas that have come under the magnifying glass recently are Africa and Southeast Asia.
For decades, populations in these regions have been largely underbanked. Instead of only traditional financial institutions, technology is now playing a large part to combat this challenge. As the G20 outlines in its Financial Inclusion Action Plan, digital financial services are crucial to bridge the gap toward financial inclusion — and the potential is already becoming clear. For example, 84% of internet users in Kenya regularly make payments with mobile phones.
Growth in trade flow also skews toward emerging markets. McKinsey reports that Africa led the way in 2021 with 43% growth, followed by Latin America at 38%, and Asia-Pacific at 26%. Developed markets, meanwhile, grew in the 20% range.
Key drivers of digital payments adoption
In addition to broad technological improvements, the COVID-19 pandemic brought unique factors that are accelerating digital payments in emerging markets.
Contactless payments and the e-commerce boom
The movement away from cash has been due to both convenience and necessity. During the pandemic, safety measures eliminated many cash transactions almost overnight, with digital payments taking their place. Yet this wasn’t a short-lived phenomenon; in Vietnam, digital transactions increased by 77% in volume during the first half of 2022.
The e-commerce explosion that accompanied stay-at-home orders has also maintained its momentum. Whether companies are processing payments domestically or internationally, it’s now imperative that they possess the infrastructure to connect with global audiences.
The promise of one-click purchasing and access to goods from new markets has in turn prompted more customers to adopt e-wallets and online payments platforms. This shift away from traditional retail transactions has also prompted many non-financial companies to offer built-in tools like payments processing or even lending, a practice known as embedded finance.
[Want to learn more about embedded finance? Check out our panel discussion from Money2020 Europe on the Converge podcast]
Remittances
The use of digital payments is also rising in concert with an increase in remittances to low- and middle-income countries, which grew in 2022 to reach an overall value of $626 billion out of the global total estimated at $792 billion. This underscores the fact that smartphones have become a fulcrum in the flow of currencies across borders.
That’s because digital-first money transfer organizations (MTOs) have made it easier to send money by enabling large numbers of unbanked residents to do it digitally using just mobile phones, tablets, or computers. The Visa Economic Empowerment Institute notes that MTOs’ ease of use and lower fixed costs spurred competition and lowered rates for consumers. By circumventing traditional banking systems, these challenger services offer “faster speed, better transparency, and lower costs.”
What does that mean for money transfers across borders? As outlined by the Global Knowledge Partnership on Migration and Development (KNOMAD), cross-border remittances and currency valuations are deeply intertwined. For instance, the unexpected strength of the Russian ruble versus the U.S. dollar boosted outward remittances to Central Asia and the Southern Caucasus. A weaker euro had the opposite effect, reducing the valuation of flows to North Africa and elsewhere in U.S. dollar terms.
A puzzle of regulation, security, and interoperability
These favorable trends are creating a tailwind for the cross-border payments industry, but there are ongoing hurdles.
Fintech firms, technology companies, and banks must all contend with opaque compliance requirements, shifting regulatory environments, and an ever-increasing range of digital payments tools like transfer apps and local card providers.
So how can expanding businesses ensure their payments processing is both widely accessible and secure? By working in collaboration with a payments provider that combines a worldwide network and local expertise with a modern platform.
Expand globally with a trusted FX partner
For many emerging economies, this strong growth doesn’t show signs of halting. Forecasters expect payments growth in some developing economies to continue at a compounded rate of 15% from 2021 through 2026.
Partnering with a firm that boasts a global footprint and deep experience in emerging markets can make all the difference for your business’s future payments strategy. Whether it’s navigating a new digital payments ecosystem or avoiding holdups due to the nuances of regional compliances, choosing the right partner means you can make global transfers as simple as local payments.
Convera’s global reach spans 140 currencies across 200-plus countries and territories, all backed by a network of leading banks, credit unions, and fintech companies. With experts who have decades of experience in compliance in the jurisdictions that matter most to your business, we ensure you can tap into the growth of digital payments worldwide with confidence.
Ready to learn more about the latest in cross-border payments? Sign up for Convera’s Currency Convo to get currency news, FX, and market insights from our team of regional experts.
Plus, dive deeper into the trends shaping cross-border payments today with our podcast, Converge.
