Alternative Payments Gain Global Traction, But Cash Remains Tough Foe

The recent announcement that China’s UnionPay and Huawei are teaming up to bring Huawei Pay to Russia stands as the latest example that alternative payments are spreading to different parts of the world. It also provides another sign that that cash is, generally at least, slowly losing its dominance as a payment method in all types of economies.

But while alternative payment methods are certainly on the upswing in 2019, there are significant hurdles that promise to impede their progress in the developing world and elsewhere. Of course, those hurdles can always be turned into business opportunities.

Mobile Fuel

Huawei Pay is linked to the company’s smartphones and other wearable devices. The Huawei Mate S was the first Huawei device to support the new payment capabilities. Huawei Pay now supports cards from 66 financial institutions and is on 20 smartphones and smartwatches. In 2017, it was used to perform CNY4 billion ($632 million) worth of transactions.

The increasing use of mobile phones and mobile devices for commerce and payments around the world — including in countries with relatively undeveloped banking and point-of-sale systems — promises to fuel further spread of alternative payment methods, including PayPal.

That company, in fact, recently reported a more than twelvefold boost in revenue at its Indian payments subsidiary. Launched in India in 2017, PayPal has formed partnerships with local online merchants such as BookMyShow, MakeMyTrip, Yatra, Goibibo, FreshMenu and Box8. The online payments industry in India is expected to grow tenfold to $500 billion by 2020. With that in mind, Google also launched a localized payments app for India in 2017.

India Developments

India is clearly one of the world’s largest battlegrounds when it comes to eCommerce and new payment methods, especially given that authorities there are trying to make the population less reliant on cash. That effort hasn’t necessarily been the easiest or smoothest, and the launch in 2018 of a cash-on-delivery service by LightInTheBox, a global online retail company, shows that cash still has a prime role there. In fact, up to 70 percent of eCommerce transactions in India use the cash on delivery payment method, according to Statista.com.

But consumers in India are indeed taking to mobile commerce, according to a Worldpay Global Payments report from late 2018. For instance, it found that in 2017, 26 percent of eCommerce spending in that country came via mobile wallets (though only 6 percent of point-of-sale spending did so).

“Consumers in India have typically found eCommerce to be inconvenient, but that is starting to change with mCommerce adoption and simpler payment methods taking hold in eCommerce,” the report said. “Keep an eye on the market and be ready to expand your selection of payment methods to keep up with local customers. Enabling eWallets, such as Paytm, at the point of sale could also help differentiate your business.”

Expanding Ecosystems

The ecosystems built around alternative payment methods — basically, methods that are not credit cards, debit cards or cash — are also expanding, a trend that is almost certain to gain steam in 2019.

WeChat provides good evidence of that.

In the second half of 2018, the service, which is the leading messaging app in China, rolled out a digital payment platform in Malaysia, its first Asian market outside of China and Hong Kong. WeChat users in Malaysia can transfer money between friends and family and make payments to offline merchants in the country’s currency. The expansion of the payment platform into Malaysia reportedly implies that the company is building a local payment service instead of expanding overseas by enabling Chinese customers to pay when traveling abroad.

Although cash is still the preferred payment method in Malaysia, the number of mobile phones reportedly has surpassed the population by more than 10 million.

That’s not all.

In late 2019, TD Ameritrade, the Omaha, Nebraska online brokerage, said that it became the first U.S.-based brokerage to integrate with the WeChat messaging system — a further expansion of that alternative payment ecosystem, one that could keep users from moving to other platforms and enable them to perform a wider range of transactions.

Cash Persistence

Still, as PYMNTS research has regularly confirmed, cash remains a tough foe working against the spread of alternative payment methods. In the latest Global Cash Index from PYMNTS, research found that cash share accounted for 60 percent of South Africa’s GDP, as well as 37.5 percent of Saudi Arabia’s GDP — two hurdles in two relatively important countries. As well, Middle Eastern consumers made $0.9 trillion in cash payments in 2016. This is expected to rise to $1.4 trillion by 2021.

But nothing lasts forever (even New England Patriots quarterback Tom Brady will retire one day, in fact, even if he sometimes doesn’t seem to believe it himself).

That applies to cash, in large part because of these digital alternative payment methods. Even still, those cash-to-digital bridges will take time, considering that 85 percent of the world’s transactions are still using it. Some alternative payment methods will no doubt fail to gain traction, and there is good cause to think that consolidation of those methods will start happening in the coming years as scale becomes a critical success factor for igniting digital transacting. As developing countries and other markets engage more often in eCommerce and become even more attached to their mobile devices, the move from cash to digital promises to be a fun and interesting payments ride.