Tuesday, June 6, 2017

Intuitive Payment Gateways in Emerging Markets


[Guest Post by Arthur Jones]

While protectionist rhetoric and a call for reducing free trade worldwide have been on the rise in certain countries, global trade continues to push beyond borders. Now more than ever, emerging markets are beginning to take center stage as leaders in eCommerce and trade at large.

Emerging markets are home to 85% of the world’s population, with 90% of people under 30 residing in countries that are transitioning from agriculture and resource-based economies to service and investment-heavy markets ripe with burgeoning middle classes ready to spend.

Yet, how will this emergent middle class pay for goods and services? In many countries around the world, cash is still king. However, with keen government support, innovative technology, and widespread adoption of smart mobile devices driven by the IoT (internet of things,) cashless economies are set to usher in new consumer frenzies in Southeast Asia, South America, and Africa.

From digital payment gateways to mobile wallets, let’s take a look at how the emerging markets are setting up shop online.

Cash-Centric to Cash-Free

According to a report from PWC, the payment processing sector is primed for a shake-up. In their 2017 report, Emerging Markets: Driving The Payments Transformation, the global finance and consulting firm found that: ““The payments business, traditionally dominated by banks, is witnessing increasing competition from new entrants, most of which are non-bank players. These include retailers, telecommunication providers, technology companies, startups and others players that specialize in niche value-added services in the payments processing chain.”

PWC’s Global FinTech Survey from 2016 breaks down merchant and consumer tech adoption. In many cash-heavy economies, typically affluent urban areas in emerging markets have long been bastions of electronic POS and ATM use. This has been the case within cities in Brazil, China, Mexico, Nigeria, and South Africa. Meanwhile, mobile wallets and mobile POS use have been seeing steady growth in urban India, China, and Brazil. Interestingly enough, the emergent mobile commerce (mCommerce) sector is seeing rapid adoption in key African markets, specifically Kenya, South Africa, and Nigeria, where telecommunications and smartphone capabilities among middle-class consumers are reaching parity with more established economies.

India: A Cashless Case Study

In terms of cashless emerging economies, India is seen by many as a litmus test for how policy can dictate the terms of progress. In December 2016, Forbes contributor, Wade Shepard, wrote on a cashless future for the world’s largest cash-centric economy.

India is the midst of a massive demonetization scheme led by Prime Minister Narendra Modi along with several high-ranking government officials. In essence, the strategy set by the prime minister was to nullify all 500 and 1,000 rupee banknotes and to replace them more secure 500 and 2,000 notes. This policy came as a shock to much of the country since it was announced in a surprise television announcement on Nov. 8th, 2016.

For context, Forbes reports that hard cash accounted for up to 95% of all transactions in India, with 90% of vendors lacking card readers or any means to accept electronic payments. 85% of workers were still being paid in cash prior to Modi’s demonetization. In fact, Forbes also found that even Uber in India accepted cash in order to acclimate to the local consumer culture, a first for the global ride-sharing company.

Modi prides himself as a staunch enemy of corruption, and Shepard asserts that the demonetization scheme was rushed into implementation to catch the black market off-guard. However, the planned 50-day transition is estimated to take months as the government “catches up” to replace the nullified bank notes with secure replacements, effectively forcing the majority of India’s consumers and entrepreneurs to adopt cashless alternative payment methods. And although the goal of the campaign was to initially combat corruption, much of Modi’s recent rhetoric seems centered on transitioning India to a cashless economy.

Whether India at large is ready to accept these changes or not seems to be irrelevant as the government intentionally lags in replacing obsolete banknotes. According to HSBC’s Indian affiliate, new bank accounts are being opened at an astonishing rate, and even traditional market vendors from launders to vegetable sellers have begun setting up mobile POS at their stands.

A Digital, Cash-Free Future

With forward-looking policy makers along with an innovative generation of digitally-adept millennials, emerging markets will only adopt cash-free payment methods at a faster rate as the digital pandora’s box stays firmly open. While the transition will by no means be effortless or uneventful, this massive paradigm shift will dictate how the next generation of non-Western economies lead the way for a bright future in global trade and commerce.

Author Bio: Arthur Jones is a freelance fintech consultant. With an MBA and years of experience at the IMF, Arthur enjoys utilizing his expertise to help new entrepreneurs acclimate to new global payment gateways market research, consumer insights, and the latest trends in eCommerce.


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