The past 18 months have seen the use of digital payments methods gain continual momentum. The COVID-19 pandemic has increased the importance of digitisation among retail consumers, businesses, and corporations. Such rapid growth in the payments sector means that 2022 will be a crucial year for market participants to grasp the opportunity laid out before them.
A lack of access to traditional physical payment methods has seen the use of digital wallets and payments systems explode. Digital transaction values, already seeing growth prior to the pandemic, are surging. Europe alone experienced growth of $260 billion in 2021, with a further $775 billion expected by 2025.
That growth is sure to continue apace, driven by firms looking to embed the benefits of digital payments deeper into their existing infrastructure. Similarly, consumers have never had a greater choice than the range of digital banks, payments providers, and wallet services available to them.
The new generation
As we move deeper into the decade, standing apart from the crowd will be a crucial success factor for firms. This is especially the case as newer, technology-discerning generations gain prominence in the marketplace. Millennials, the oldest of whom are already reaching their 40s, use up to nine digital wallets or services across their daily lives.
Members of Generation Z are in their 20s. This tech-savvy cohort could eclipse millennials and are already entering the market with a critical eye for digital design, experience, and convenience when it comes to their payments. 76% of Gen Z consumers have used a peer-to-peer (P2P) service, with 26% using it weekly. A further 73% report using digital apps as their main banking and payments channel.
This demand for contactless payments has also driven the commercial side’s adoption. The US National Retail Federation report found 94% of retailers adopted contactless payment methods during the pandemic. In 2021, 56% of firms reported acceptance of mobile wallet payments, up from 44% in 2020.
Lessons from BNPL
Buy now, pay later (BNPL) payment schemes have also exploded in popularity and usage throughout the pandemic. Affirm, Afterpay, and Klarna, among the largest firms offering these services, have combined revenue of more than $2 billion. These platforms grew 215% year-over-year within the first two months of 2021.
Consumers are spending more time at home as a result of the pandemic, and this, in turn, is driving their spending habits online. While younger consumers see traditional payment methods like credit cards as risky and complex, BNPL applications and companies utilise design, convenience, and robust integration with retailers’ online storefronts to attract them.
This is a lesson for market participants to grasp the new digital opportunity. When both sides of the transaction become as streamlined as possible, customer growth is inevitable. Firms in the market should pay attention to all generations’ preferences and gear themselves around a market trend that can only grow.
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