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Traditional vs Digital Payments: An All-Out War!

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Payments are becoming increasingly cashless, supporting the development of digital economies, and driving innovation. Digitization of commercial and consumer transactions have gained upward momentum. Global payment revenues contributed to $1.9 trillion in 2020.

Also Read: Billion-strong Marketplace: Bridging the Digital Divide in Rural India

Shift in consumer behaviour

The pandemic has reinforced a major transition in user behaviour towards payments: decline in cash transactions, migration from brick-and-mortar store to e-commerce, adoption of UPI payments, etc. These transitions have created new opportunities for players in the payments industry. The sharp reduction in cash transactions have led banks to rethink their distribution strategy, prompting them to re-evaluate ATM footprints. Regulators of the finance industry are designing mixed strategies to ensure continued availability of cash and digital financial resources, to all — including the underbanked.

David vs Goliath

Digital-wallet usage has surged over the past year, as consumer preferences have evolved with contactless forms of payments. With UPI players such as Gpay, PayTM, PhonePe, etc. tyring to get a piece of the pie, the banking industry has had a tough challenge to stay competitive without adopting newer technologies. Collaboration of Fintech and Banking has softened the blow and has helped banks to pick up pace and introduce new payment ecosystem in the market.

India has been one of the top players in Asia registering 25.6 billion transactions in 2020 (a 70% increase over 2019), followed by China and South Korea. Following the pattern, currently, around 56 countries have a real-time payment ecosystem in place, a 4x increase from 2015.

The introduction of mobile applications leveraging instant payments infrastructure such as GooglePay in India & PayNow in Singapore) has helped to proliferate growth. In Europe, the trend is quite evident. A report by Accenture stated that digital players such as PayPal and Square have outperformed UK banks in terms of total return to shareholders (TRS) by an impressive 12 times since 2016. Leading Payment processors such as Visa and Mastercard, for comparison, could only achieve 2.6 times the TRS of UK banks over the same period. Even market leaders are under threat as digital payments ecosystem and fintech players mount a credible challenge to the dominance of cards. Mastercard and Visa have taken cognizance of the changing payments dynamics and customer behaviour and have invested heavily in fintech acquisitions to stay competitive.

The ease of use for these new payment systems have pushed the boundaries for leading players even further. In India, Mastercard has launched ‘Soft POS’, a white-label solution for banks and payments facilitators that enables a smartphone to function as a merchant acceptance device.

Not just digital payments, but money transfer ecosystem is also witnessing a major overhaul. The traditional money transfer approach has been replaced with a unified remittance system that leverages API to create an ecosystem to transfer money in real-time. Visa Direct and Mastercard Send are some of the examples of such initiatives.

Last-mile Adoption

Merchants across the globe have embraced and welcomed contactless payments with both arms. This shift was due to changing customer behaviour. QR-code, Tap-to-Pay payments are convenient, real-time, and seamless when compared to other mode of payments. Onboarding merchants across TIER 1, 2 & 3 cities have created a large market for digital payments and have given merchants who only accept cash transactions a run for their money. For them, it is an ‘adapt or die’ situation wherein merchants accepting contactless payments are given precedence over them. It is not about loyalty anymore. It is about convenience and ease of use.

Government Initiatives

The transition in payments ecosystem has also seen government entities leveraging the change to create a more robust and wider digital footprint. In India, NPCI launched BHIM (Bharat Interface for Money) to facilitate last-mile delivery and consumption of digital payments across the nation. It also helps the government to leverage the app for other welfare and social initiatives such as welfare payment disbursals, victim relief funds, etc.

Digital ID–enabled payment solutions achieved wider reception as well. In India, transactions through Aadhaar-enabled Payments System (AePS) more than doubled over the last two years. It helped the user to perform fund transfers, withdrawals, deposits with just their Aadhaar card and fingerprint, without having to enter PIN or provide signatures.

Change is evident

This disruption to global payments ecosystem has profound implications for incumbents who rely on the traditional revenue model of mark-ups on interchange fees and merchant charges. With these fees at risk, banks and other payment processor organizations must reassess their go-to-market propositions and realign their payment mixes.

The ecosystem sets the stage for payments leaders to design the future of cross border payments. Currently, the largest and most successful technology making international payments seamless is the blockchain. The immutable nature of blockchain puts it at the forefront and makes it ideal for overseas transactions.


As we look into the future, we will witness a boundary blur between banks, fintech players and payment processors, as payments become more embedded in marketplaces and across industries. Beyond smartphones, other IoT enabled devices such as wearables (e.g., watches, wristbands, VR headsets) will soon become contactless payment devices. And it is only a matter of time before the battle is won by the Davids of the payments ecosystem. The question remains then is, which side are you on? David or Goliath?

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