Digital Payments in Emerging Markets

Emerging markets are rapidly embracing digital payment solutions, transforming traditional financial transactions. This shift presents significant opportunities for both businesses and consumers. Companies benefit from innovation, while customers gain access to more inclusive financial services.

However, this progress comes with its own set of challenges. Stakeholders must navigate issues like regulatory compliance, security risks, technical difficulties, and more. To fully leverage the advantages of digitization, it’s essential to understand both the benefits and potential obstacles of digital payments.

In this blog, we’ll explore the five biggest challenges and opportunities for digital payments in emerging markets and highlight areas for improvement.

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Five biggest challenges in digital payment adoption

While much of the world has swiftly adopted digital payments, emerging markets have shown some resistance. This hesitation stems from various challenges faced by governments, businesses, and consumers. Here’s taking a look at some:

1. Broken technology infrastructure

A major barrier to digital payment adoption in emerging markets is infrastructure, particularly in rural areas. Limitations like unreliable internet connectivity and the lack of payment networks hinder customers from fully embracing digital payments. Additionally, underdeveloped technology infrastructure prevents them from accessing seamless digital transactions across different platforms.

2. Rigid regulatory compliances

Operations without regulatory compliance are impossible, and markets with rigid, outdated regulations make it challenging for innovation to thrive. Fintech companies must adapt their products and services to meet these regulations, but legacy frameworks often stifle innovation and technological advancements.

Also cross-border policies differ across markets. Countries with strict or lengthy regulatory processes can create operational hurdles for businesses looking to expand or innovate.

3. Inaccessible financial services

Access to financial products and services is still a challenge in many underdeveloped regions across emerging markets. Though nations are gearing up towards financial inclusion, multiple regions are either unbanked or underbanked.

With no access to financial services, digital financial services are distant, because people are either unaware or they have a hard time availing the services. Other financial inclusion challenges include cultural barriers, high costs, lack of technology awareness, and so on.

4. Weak safety and security systems

Digital mediums and payment solutions are prone to security threats like cyberattacks, fraud, and data breaches. People from emerging markets resist digital payments for this reason rather than learning best practices to safeguard themselves.

For emerging markets to transform into major digital hubs, people must learn to trust technology and understand data security. It is when they open up to digital payment methods that adoption will follow.

5. Lack of customer education

Digital literacy is important for widespread digital adoption. People from rural areas as well as elderly people are not tech-savvy and are not aware of the digital payments process. They are also unaware of safe practices that ensure the safe usage of digital platforms. 

Government fintech initiatives to amplify digital literacy in payments among users will eventually pave the path to digital payment adoption.

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Key opportunities for growth in digital payments

Digital payments do not just have the power to lift the digital and financial infrastructure of emerging markets but also can uplift the economy as a whole. Massive growth opportunities are tied to digital payments across sectors like technology and fintech innovations. Let’s go through the crucial opportunities that can drive digital adoption:

1. Mobile payment solutions

Mobile phones are a major boost to digital financial services because they are used across nations, including remote areas. It is via mobile payment platforms that underbanked and unbanked populations are able to avail themselves of financial products and services.

For example, M-Pesa is known as the early and major driver of digital payments across Kenya. They are known for their revolutionary initiative globally and are a testament to mobile payments being the opportunity for growth in digital payments.

2. Fintech innovation

Fintechs are the new-age startups contributing to financial upliftment and innovation with their unique tech-enabled solutions. They are bridging all the gaps left by legacy banking systems as well as the lack of banking infrastructure.

Some prime examples of fintech innovation across emerging markets are peer-to-peer lending, microloans, and alternative credit scoring systems. Their motive is to understand the gaps and come up with solutions that make it easier for businesses to better serve their customers and make customers' lives better. Fintech solutions accelerate digital payments adoption.

3. Government initiatives and policy reforms

What private organizational initiatives cannot do, government-backed initiatives can. It is critical for governments to take the necessary steps to build the digital payments infrastructure. And, many governments from emerging markets have taken the rightful measures to invest in technologies that promote digital payment adoption.

They have also made necessary policy reforms that support the fintech ecosystems and break the monopoly of legacy systems. Furthermore, emerging markets are seeing multiple partnerships and ties between private and public sectors, incentivized by the government, to introduce digital financial services to the underserved sections of the society.

4. Cross-border payment and remittances

Millions from emerging markets migrate to developed nations in search of better livelihoods and opportunities. They send back money to their families in their base countries and a broken digital infrastructure makes the transmission lengthy and expensive.

The huge number of transactions undertaken is an opportunity to boost digital payments in emerging markets. Fintechs with their quicker and cheaper solutions for foreign remittance are paving the path towards great digital payments adoption.

Also read: Guide to optimizing cross-border payments

5. Telecom and financial institutions

Telecom and financial institutions are joining hands, acting as the enablers of digital payments in emerging markets. Telecom brands are expanding their network coverage to sign users up for the digital payments ecosystem. They help provide financial services to regions with no access to traditional banking.

This partnership has also enabled the telecom companies to come up with innovative solutions like mobile wallets, contributing to financial inclusion. Better opportunities will arise out of more such partnerships.

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Predictions for future trends and areas of investment in digital payments

The current advancements in digital payments in emerging markets pose strong trends for the future. Current advancements clubbed with technological and regulatory advancements will give rise to massive business opportunities and adoptions.

Here are some predictions into the future of digital payments that can be capitalized:

1. Cryptocurrency and blockchain adoption

Cryptocurrency and blockchain technology are replacing traditional payment infrastructure as a safer and more advanced alternative. Decentralized finance (DeFi) comes with low transaction fees, efficient process, easy settlement, less friction, and transparency.

Trends show a revenue forecast of USD 11.71 billion in 2030 for the cryptocurrency market verifying a potential opportunity. Cryptocurrency could become mainstream in markets with volatile currencies in the future.

2. Biometric authentication for payments

The new boon to digital payment security is biometric authentication, such as fingerprint, facial recognition, and voice identification. Eliminating the step to enter a PIN that can be replicated, biometric authentication enhances the security of transactions and keeps frauds at a distance.

This method is also very convenient, hence the global market for biometric authentication in payments is expected to grow at a CAGR of over 17.1% between 2024 and 2032.

Read more here - Digital identity verification

3. AI-driven fraud prevention and risk management

With increased adoption in digital payments, the likelihood of risks and frauds will skyrocket. AI can help curb similar security challenges with the help of machine learning algorithms that have the capability of detecting fraudulent activities.

AI and ML play a huge role in detecting, flagging, and preventing businesses and customers from fraud attacks. They can help individual customers trust digital payment methods as the AI market in fintech is expected to reach $22.6 billion by 2025.

4. Contactless and NFC payments expansion

COVID-19 has been monumental to the adoption of hygienic contactless payments. The convenience it offers contributed to its continued growth in the post-pandemic era. Near-field communication (NFC) technology is a prime example, offering speed and security.

5. Government-backed central bank digital currencies (CBDCs)

Governments are making efforts to establish CBDCs as an alternative to fiat and cryptocurrency. They are a safer and more efficient alternative as witnessed across China, U.S., and Europe. This step aims to reduce cash usage.

6. Embedded payments in everyday platforms

Businesses can offer a better payment experience to their users by integrating advanced payment solutions into their applications or websites. Users can make payments on the same platforms and businesses can offer frictionless payments experience.

7. Digital identity and KYC (know your customer) innovations 

Verifying identity digitally makes the onboarding process quick and secure. Fintechs are trying to bridge the gaps in the process of customer verification ensuring the solution can help with fraud prevention and regulatory compliance.

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Conclusion

Businesses looking to succeed in emerging markets, as well as those operating within them, need a payment solution provider that truly understands and adapts to the local market dynamics. Solutions that offer security, regulatory compliance, unique and tailored services, scalability, and more.

Payby can help you win this market with its unique features designed and tailored to market needs. We can help drive adoption of cashless payments with online and offline digital payment infrastructure to meet consumer preferences at every touch point.

Get started with Payby today.