The COVID 19 pandemic has had a tremendous effect on the world. While the immediate concern has been about preventing the catastrophic health effects of the virus and how to control its spread, it has also had effects that went beyond health issues. The pandemic resulted in severe lockdowns and quarantines all across the globe, which has resulted in changing many long-established traditions and practices.
For one, the global business landscape has changed, arguably, forever. The lockdowns meant companies had to scramble for solutions in order to preserve their businesses. This has resulted in the imposition of work-at-home and hybrid work arrangements. The establishment of remote work policies has also resulted in another effect. The rise of global payment services online that have served as a complimentary service that came about from the previously mentioned change in work paradigms.
Online transactions, in all their forms, have grown tremendously over the last year or so. A report published by KPMG showed that in 2019 paytech deals resulted in acquisitions and investments worth USD $77 billion. This is proof that the digital economy is not just alive and well during the pandemic, it is actually thriving.
Growth despite challenges
While standardization of global payments services has not yet happened—for example, a point of contention is still the competition for the best money transfer fees—it is a minor issue especially when seen from the lens of a bigger development, the growing investor confidence in global payment platforms and services. They also see them as key elements in the growth of the world’s digital economy.
A report published by the Migration and Development Brief showed that remittances sent to low- and middle-income countries amounted to USD $540 billion in 2020, which is just slightly down from the USD $548 billion posted in 2019. The slight decrease year on year was surprisingly low compared to the dip that happened during the 2009 global financial crisis (1.6 percent to 4.8 percent).
The growth of the money transfer sector has been spurred by the events that have happened globally. This could be because of the increased reliance on cashless payments, both locally and in international transactions. Digital payments and electronic money transfers have increased their importance in this new situation. While the shift to digital was already far along the way, the pandemic has accelerated it to such a degree that it’s slowly going on overdrive.
About 10 years ago, cross-border payments in the digital space was still a budding industry. A lot of the big players in the digital payment space were just starting. For the more established companies—MoneyGram and Western Union, for example—electronic cross-border payments were a tiny blip in their revenue portfolio, about 2 percent for MoneyGram in 2011.
But times have changed and the adoption of these new technologies has resulted in a marked acceleration in populating this market. The early adopters in the game, like WorldRemit, were quick to expand out of the gate with almost 30 markets in their infancy. Realizing that there is huge potential in this new sector, the established brands also hatched a growth plan to expand this market, with MoneyGram now operating in 70 markets all over the world. Regardless of whether these are new players or veterans, one thing is for sure though, they were all able to adjust to meet the sudden demand growth for digital payments, especially the pandemic upsurge.
A crucial service
The pandemic forced many people and businesses to abandon traditional cash payments mainly due to difficulties of initiating face-to-face transactions, and also the ease of being able to pay wherever they are. The numbers bear this. For example, Western Union has reported revenue growth for digital money transfer of 45 percent in the first quarter of 2021. MoneyGram, on the other hand, reported a growth of 15 percent for its digital business in 2020. A most notable number though is WorlRemit’s 150 percent year-on-year growth in new customers between March and April of 2020.
It is evident that these companies are offering a service that is seen as life-changing and crucial for many people. If you look at the fact that traditional cash transfers actually dipped to zero in some countries and about 30 to 40 percent in others during the height of the strict global lockdowns, it is obvious that another form of payment method was needed as an alternative. Thus, the rapid growth in the industry.
The interesting result of this though is that even after the pandemic is defeated and life slowly goes back to normal, many people and businesses will not go back to using cash payments. This shift is not going to be temporary at all. It will have a lasting effect on the payment landscape.
More changes are coming
While cash payments and traditional payments to bank accounts will still be used by people, especially in some receive markets that are not yet as technologically robust. It is also evident that mobile solutions are going to get traction in a big way.
During the pandemic, when traditional cash transfers went down to zero in some countries, many companies pushed the mobile alternative to send and receive payments. This is a development that will keep growing now that people have realized how convenient it is. Depending on the available mobile and data infrastructure of various countries, the mobile experience will slowly but surely dominate the space.
Of course, there will still be some resistance to mobile payment experiences from more traditional users. Many of the companies that offer various payment and receive options will wisely not push a particular method over another so as not to alienate its customer base. It doesn’t mean that they won’t slightly, but subtly push for mobile though.
The pandemic has brought profound changes to people and many businesses. But one thing has been evident, money transfer services offered by fintech companies have saved the day for many users who needed a fast and efficient way to pay and receive money.