Payments: The economy's veins and arteries
Evolution of payments and mobile money
TEN13's Seamus Crawford looks into the innovation in payments as cash quickly becomes a relic of the past.
Here we go deep on the evolution of payment systems. While Visa and Mastercard have a strong hold on the developed world, we are seeing so much more innovation in developing regions.
After the recent passing of Queen Elizabeth II, one of the world’s longest-reigning monarchs, I found it incredible to learn that her face appeared on the cash of 33 different global currencies.
It also made me reflect on how infrequently I now use cash. Whenever I grab my morning brew, I tap my phone on the small, white, square-shaped magnetic card reader of my local coffee stall. The process of a seemingly simple transaction like this has evolved beyond all measure, even in my lifetime.
Transactions are and will continue to be, at the core of every economy, both developed and developing. Payments, in particular, are a subject that we at TEN13 love geeking out on. If you start going down the payments rabbit hole, however, your head can start to spin pretty quickly.
Innovation is moving so fast, especially with recent developments in blockchain, the digital asset space, and instant payment infrastructures. These incredible technological advances are no longer just limited to the wealthiest nations, with smartphone and internet penetration reaching all-time highs across many emerging economies.
In the consumer-to-business (C2B) payments space, cash continues to be displaced at a rapid pace. C2B payments currently amount to roughly $40T globally. Around the time of the GFC, ~75% of C2B payments were transacted via physical cash or cheque - that share now only represents ~40%. Digital payments could easily increase to account for ~70% in the next decade.
In recent years, one of the key tools and catalysts that has helped drive this innovation and access for consumers has been the rise of digital/mobile wallets.
Mobile wallets are essentially digital applications enabling consumers to securely store financial information and funds, as well as execute online and offline transactions, all usually via a mobile phone. Mobile wallets are broadly categorised across three areas:
- Closed-loop wallets (or ‘stored-value’ wallets): users top up accounts linked to credit/debit cards and linked to merchants for online/offline payments e.g. ShopeePay, GrabPay & Alipay.
- Open-loop wallets (or ‘card-based’ wallets): users connect credit/debit cards to their mobile phones. e.g. Google Pay, ApplePay, and PayPal. Consumers can pay merchants with NFC (contactless) enabled terminals.
- Semi-closed-loop wallets: users can pay bills, buy goods and transfer virtual funds to other accounts within the same wallet network. These are typically more focused on local/regional scale e.g Paytm in India.
The global number of mobile wallet users is estimated to increase by almost 75%, from 2.8B in 2020 to 4.8B in 2025 (nearly 60% of the forecast global population). Furthermore, the value of digital wallet transactions is anticipated to jump from $7.5T in 2022 to over $12T in 2026.
South East Asia is anticipated to be the fastest-growing region for mobile wallet use, with over 300% growth in wallet users by 2025, to 440M.
The distribution of mobile wallets is now truly global. Following the thesis that ‘every company will be a fintech’, non-banks have been leading the charge (e.g. Apple, Google, Block, Grab, Alibaba, Shopee etc).
Mobile wallets have acted as an important catalyst for financial inclusion, offering a more frictionless consumer onboarding experience. Importantly, mobile wallets don’t require a traditional bank account to get started, opening up access to a much wider set of consumers, particularly the unbanked and underbanked. Although difficult to make money from in isolation, sustainable ecosystems and business models can be built around mobile wallets; payments as a wedge can act as an initial gateway to other products such as savings, credit, investing, and insurance.
With mobile wallets as a powerful onramp for potentially billions more customers into the financial ecosystem, a number of other developments in the payments space are providing both consumers and merchants with ever more options.
Across Asia, for example, the majority of mobile wallets are built directly on instant payments infrastructure, enabling transactions to be settled within 60 seconds. For instance, India’s real-time, mobile-enabled system, the Unified Payments Interface (UPI), coupled with offerings such as Paytm and Mobikwik, are expected to drive mobile wallet growth volumes to $430B by 2027 (according to BlueWeave Consulting).
With so much innovation happening in the space, even behemoths like Visa and Mastercard (which process over 15% of global GDP - think about that for a second…) are now taking notice and having to plan where they are going to sit in the payment stack over the next 10-20 years.
As well as integrating into the Samsung Pay app in India, Visa and Mastercard have launched Bharat QR, an Indian QR code-based payment method for consumers.
The payments space is clearly a huge opportunity for entrepreneurs looking to leverage exciting new technological innovations. This hopefully results in a more frictionless and accessible ecosystem for both consumers and businesses globally.
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Stew Glynn is the Managing Partner & Co-Founder of TEN13. A co-investment platform that provides sophisticated investors access to exciting private early-stage technology deals.
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Stew Glynn is the Managing Partner & Co-Founder of TEN13. A co-investment platform that provides sophisticated investors access to exciting private early-stage technology deals.
Expertise
Stew Glynn is the Managing Partner & Co-Founder of TEN13. A co-investment platform that provides sophisticated investors access to exciting private early-stage technology deals.
Expertise
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