Banks take the lead in embracing digital payments

NAIROBI - The African continent has witnessed an increase in the use of digital payment platforms as governments disseminate stimulus funds to mitigate the economic impact of the Covid-19 pandemic.

This means not just safer, cashless payments to facilitate social distancing during the pandemic - but in the longer-term, it also means a shift towards financial inclusion that could help get economies back on track faster after the crisis.

Notably, the emergence of payment systems that are designed to function seamlessly with mobile devices, in-app methods, or browsers has prompted wide-ranging innovation from banks, digital giants, and FinTechs.

According to a research paper published by the Boston Consulting Group (BCG), the volume of digital payments is soaring and by 2020 is likely to approach $5 trillion worldwide. There is no denying that fintech is one of the fastest-growing emerging sectors globally, employing thousands of people and generating new sources of revenue for economies worldwide.

The continuing move to digital payments will powerfully affect retail banks because payments remain central to their customer relationships.

Although continued low interest rates, reduced transaction fees and margin pressures have made the business more challenging, payment-related revenue (including revenue from accounts, non-card payments, debit cards, and credit cards) still accounts for a third of banks’ top line.

According to a report recently released by the Standard Chartered Bank, Cash withdrawals from ATMs are now half what they were two years ago.

The report states that today, 89 percent of transactions are being conducted digitally with a 68 percent and 90 percent penetration for their Retail and Corporate clients respectively.

As transaction volume for digital payments in large and small amounts continues to grow, the payment provider needs to be innovative to meet increased demand. And as digital user interfaces have improved for apps and websites, consumers are finding it easy to forgo cash when paying for a wide range of goods and services. The result is rapid growth in digital payments.

This growth has elicited major competition, with digital payments firms such as Visa doing their best to attract more users through their banking partners.