The Future of Payments Lies in Emerging Markets and Interoperability

Emerging markets have contributed almost two-thirds of global GDP growth over the past 15 years. So, it’s not surprising that businesses in established markets like the U.S. and U.K. are looking to expand their operations in these up-and-coming regions — whether it means working with local vendors, hiring remote employees located in the region, or selling to regional consumers. 

But building these connections is rarely simple, especially when it comes to making and accepting payments. Legacy payment rails are inadequate in supporting efficient cross-border bank transfers between established and emerging markets. And to add to the complexity, companies must now contend with a diversity of payment channels and preferences.

Since emerging markets have historically been underserved, they have less legacy infrastructure to contend with compared to established markets. Although the lack of technology has presented challenges in the past, today it offers emerging markets a unique opportunity to deliver agile transformation.

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As a result, emerging markets are leapfrogging traditional payment systems with innovative solutions to localized challenges. For example, in numerous emerging markets, consumers and merchants are more likely to store money in mobile wallets than in traditional bank accounts. But as alternative payment channels continue to evolve around the world, established financial institutions are struggling to keep up with the unique payment needs of each region. 

Adapting to market shifts is vital. But to accomplish it, banks need a platform that enables interoperability to facilitate real-time payments across multiple markets and payment channels. Only with this capability can financial institutions evolve alongside emerging markets and create an ecosystem that serves businesses and individuals around the world.

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Three Payment Trends in Emerging Markets

Payments in emerging markets are diverse, and the channel mix varies from region to region. Factors like government investment, regulation, consumer preference, and even local fintech market maturity all contribute to the quality of the payments ecosystem in each country. To ensure banking customers can access the fastest-growing markets in the world, financial institutions need to understand and adapt to the unique payment needs of each market. 

With that in mind, here are some of the current payment trends in three key emerging markets:  

  • Philippines: A mobile wallet market

In the Philippines, the push for financial inclusion has made significant progress in recent years, largely due to the rapid adoption of mobile wallets and digital payments. In 2020, the value of mobile wallet transactions in the island nation reached around 15 billion USD, with forecasted figures totaling as much as 63.5 billion USD by 2025. My company, Dandelion, the largest real-time payments network in the world, has experienced an annual increase of 300% in cross-border payments to mobile wallets in the Philippines, and we predict continued growth in the adoption of alternative channels. Clearly, companies operating in the Philippines must be equipped to make real-time payments accordingly. 

Regional cooperation and regulation in the region will also have a significant influence. With frequent migration between Southeast Asian countries, governments in the region are creating cross-border trade agreements that enable consumers to easily travel and pay for products and services with mobile wallets. These agreements will solidify how mobile wallets and alternative payments function, forcing companies and financial institutions to rapidly adapt. 

  • Mexico: A hybrid cash and digital banking system 

 Mexico’s journey toward digital payments transformation is nascent. As a result of financial exclusion and a historical mistrust of legacy banking systems, cash continues to represent the dominant payment method in Mexico, where 60% of consumers are unbanked. Although regulators in Mexico are beginning to embrace financial modernization, Mexico still lacks the necessary infrastructure to enable the kind of robust digital payments ecosystem that exists in other emerging markets. Instead, a hybrid cash and digital banking system is emerging. 

For cross-border payments, cash pick-up is still the primary method of payout — even if the payment originates from a digital channel. Domestically, fintechs like Conekta enable Mexican consumers to buy online and pick up in-store with a cash payment; in 2021, cash accounted for 67% of their online payments. 

Innovative alternative payment solutions create a bridge between cash and digital, and enable Mexicans to participate in the digital economy despite the lack of credit cards, bank accounts or mobile wallets. The lesson for banks and businesses alike: to succeed in cash-dominant regions like Mexico, address the needs of consumers who prefer cash. A truly interoperable digital payments system should offer cash pick-up to maximize accessibility.  

  • India: A more mature yet complex payments infrastructure 

India is the North Star of emerging markets’ journey toward digital transformation. In 2011, only 35% of Indians over 15 years old owned an account at a bank or other financial institution — now, over 80% do. How did they increase the rate so dramatically? India knew it needed to embrace financial inclusion and enable people to participate in the digital economy. To reduce reliance on cash and bring India into the digital age, the government implemented the India Stack, which consists of three layers: 

Aadhaar, the first layer, gives Indians the ability to register for a digital ID and submit their biometrics. As of 2020, more than 88% of the total population in India is registered for the Aadhaar program. 

The second layer in the India Stack, the Universal Payments Infrastructure (UPI), allows people to pay interoperably across bank accounts and mobile wallets. Merchants in India often lack access to digital payments hardware or reliable WiFi, so UPI enables Indian merchants to use a simple printed QR code to accept payments from customers with a mobile phone. 

Lastly, the centralized data layer creates consistent and structured information about the consumer. A key component of the data layer is that individuals maintain control over their personal data and decide whether it should be shared with third parties. 

India’s payments infrastructure is one of the most advanced in the world. As it evolves, it’s important for financial institutions to pay attention to local regulations and ensure they possess the capabilities to navigate their new technology. 

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Financial Institutions Need to Act Globally 

Today, every bank needs to behave like a global bank because their customers — both consumers and businesses — are operating internationally. Whether it’s hiring talent in another country, purchasing goods from an emerging market, or strengthening a supply chain with manufacturers from a new region, interoperable cross-border payments in real-time are key. 

Unfortunately, legacy cross-border payment rails are failing to deliver on this promise. Existing systems are slow, clunky, and lack transparency and inclusion. Payments to emerging markets can take days to process, with unexpected fees extracted by intermediary banks. 

Even worse, legacy rails lack the interoperability to make seamless, cross-border payments work across channels. Trends in emerging markets like India, Mexico, and the Philippines show that financial institutions can’t ignore alternative payments like cash pickup and mobile wallets. Customers are already turning to fintechs and neo-banks who provide these services, and financial institutions need to catch up. 

The good news is that banks and fintechs are collaborating more than ever. Rather than relying on outdated payment rails that create poor customer experiences, financial institutions are building partnerships to rapidly evolve their infrastructure. Today, the new way of doing business globally includes borderless real-time payments that enable people to pay anyone, anywhere, anyway. 

Cecilia Tamez is the Chief Strategy Officer for Dandelion, a Euronet company. Under her leadership, Dandelion has rapidly grown to become the largest cross-border payments network in the world, processing payments to 180 countries and enabling a diversity of payout options to more than 4 billion bank accounts and mobile wallets. Tamez was the fifth employee at Xe and supported the growth of the company through its acquisition by Euronet in 2015. She is a frequent public speaker on the importance of cross-border payments – with a special focus on emerging markets, data science innovation in the fintech industry, and increasing diversity in tech and financial services. With nearly 20 years of experience in the industry, Tamez is passionate about closing the innovation gap between developed and emerging markets by fixing outdated and broken payment rails and introducing end-to-end real-time cross-border payment systems that can reach individuals, businesses, and banks in every corner of the world.”

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