The challenges and trends of the digital payment industry

The mobile wallet and payment technologies industry is shifting toward digitization. The rapid surge in the adoption of smartphones, growing internet penetration and rising government initiatives to develop smart cities in many countries is driving strong demand. The industry is geared for significant expansion, with BCC Research estimating the global market for mobile wallet and payment technologies to reach $12.6 trillion by 2027, at a compound annual growth rate (CAGR) of 23.1% between 2022-2027.

With impressive growth on the horizon, we’re diving into the key factors driving the industry forward.

Rapid growth in the use of payment wallets in the e-commerce industry

More than half of the world’s internet traffic comes from mobile devices. The major reason for the rise in demand and growth of the e-commerce industry is the convenience offered by the mobile wallet and payment gateways used on these devices. Using a mobile wallet enables shoppers to buy things from online stores via automated payment gateways. The use of mobile wallets in the e-commerce sector enhances the overall shopping experience for customers.

In addition, mobile wallet and payment transaction volume is expected to grow aggressively in emerging regions such as APAC and MEA, due to the surge in internet penetration, increasing users and the online shopping market. As of Nov. 2022, Alipay, a payment platform, has around 1.3 billion users globally. Consumers today are more inclined to use mobile pay options than debit and credit cards, since mobile options are more convenient, reducing the use of cards. The role of mobile commerce, or m-commerce, is significantly boosting the market for mobile wallet and payment technologies since smartphones and mobile devices are more widespread than bank accounts or computers.

Rising fintech investments define the industry landscape

The fintech industry has been gaining significant traction while encouraging banks to boost technological investments. This is a key driver in the expanding landscape. Xendit, in Sept. 2021, a payment solutions provider, secured $150 million in a series C funding round. The company developed advanced digital payment value-added services for customers. Mounting investment across the fintech industry will create lucrative opportunities for mobile wallet and payment business expansion.

Growth in mobile wallet and payment technologies is propelled by the presence of an extremely competitive landscape and investments from foreign players. India has various payments providers, with over 45 wallet players, 50 UPI-based payment service providers and 142 banks on the UPI platform. The competitive landscape includes telecom companies, e-commerce entities, banks, internet companies and messaging applications. The market for mobile wallet and payment technologies has seen positive investor sentiment in recent years, with large investments and acquisitions targeting fast-growing startups.

In the last two years investors have been moving focus toward fintech start-ups, working toward developing application and enablement layers across mobile wallet payment offerings. Some areas (NFC-based payments applications, identity management and KYC, customer life cycle management, merchant onboarding, enterprise applications and last mile connectivity) are gaining higher preference among investors. Given the high-volume, low-margin nature of the payments business, investors have increasingly preferred large, established players to increase scale, especially in tier-3 and tier-4 cities.

Increasing risk of cyber-attacks

There are still some hurdles for the industry to overcome. As large numbers of customers choose digital transactions, cyber-attacks are increasing in numbers and complexity.

Mobile payment applications are primary targets for hackers and fraudsters. Attacks on mobile wallets result in financial losses and confidential data leaks. Recently, more than 50,000 mobile banking customers at fifty-six European banks were impacted by Xenomorph malware. Xenomorph puts a screen over a running application to trick customers into revealing confidential information. Malware like this poses a real threat to the digital payment industry.