Digital Payments(Themes Trading)

The pandemic accelerated two trends in the world of digital payments: cash-to-noncash conversion and e-commerce adoption.

These were hardly new concepts, but with restrictions, lockdowns and the impossibility of moving around freely (especially across borders), these trends became the main drivers for growth and further adoption of digital payments.

Global digital payment´s revenue declined between 2019 and 2020, from $2 trillion to $1.9 trillion Covid was to blame, as generalised uncertainty took a toll on consumption levels across the globe. Still, a 5% contraction during the worst economic crisis in history isn’t so bad.

Now in recovery mode, the industry is expected to hit a $6.6 trillion valuation in 2021, and $10.5 trillion within four years.

These projections result companies stabilising their output during the pandemic and responding to evolved customer behaviour and technological advancements.

Names to watch are: Alipay, Amazon Pay, Apple Pay, Tencent, Google Pay, First Data, Paypal, Fiserv, Visa Inc., and MasterCard.

Latest moves

The forecast for the future is bright. All that was lost in 2020 is expected to be regained in 2021, with revenue reaching $2.6 trillion by 2025 at a 7% compound annual growth rate (CAGR), according to McKinsey. Pushing the forecast period five years ahead, BCG is expecting the market to continue to grow at the same rate until 2030.

The division between retail and wholesale markets remains stable, with 75% of revenue stemming from the retail market, and 25% from wholesales. The forecast states there will be a marginal gain of 1% by the retail market by 2025 and will remain unchanged until the end of the forecast period. Asia-Pacific will be the engine that will drive growth. This region has always outpaced others in growth rates, and will continue to do so, at least until 2025. Revenue is expected to grow from $1 trillion to $1.3 trillion, at an 8% CAGR, compared to 6% in North America.

By 2025, revenue in North America will have grown from $0.5 trillion to $0.6 trillion. The transition to digital payments isn’t without threats and flaws; the biggest risk to cashless payments being fraud. Attacks are growing in number and sophistication, however, merchants are taking action. They are adopting a multi-layer approach that, although not bulletproof, has reduced the frequency of attacks.

Merchants are further transforming the checkout experience for customers by integrating payment services into their platforms.

Previously, service providers would connect merchants to the broader financial system so they could accept credit and debit card payments. The updated process cuts out the third party, making the transactional element of a sale seamless. Buy-now-pay-later was the posterchild of the pandemic, allowing consumers to spend in bite-sized amounts when personal budgets were tightened. The industry continues to grow in popularity, and is expected to rack up $680 billion in transaction volume worldwide in 2025.

Outlook 2022

Even though cash payments will likely rebound slightly after plummeting in 2020, the tendency is for mainstream adoption of cashless payments. McKinsey believes that two-thirds of the reduction in cash use will be permanent. JP Morgan is already envisioning a world where payment is entirely in the background, without even the need to check out. Further technological developments are still needed, but that seems to be the path we are on. Payments will also be quicker. Businesses are demanding access funds on the same day of the sale and digital payments can provide that service. Eventually, real-time payments could become the norm, representing virtually no difference from cash. Digital payments are here, not only stay, but to change our lives.

DIGITAL PAYMENTS Themes Trading

ISIN CH0434695034

Valor 043469503

Symbol DIGPTQ

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