Digital Wallets Are Cards' Worst Nightmare Come True in E-Commerce
Global card use in e-commerce will drop by 11% in the next 5 years.
If I worked for Visa or Mastercard, I’d be worried! Global Card use for e-commerce will drop 11% from 41% of all payments in 2023 to a predicted 30% in 2028!
And what is killing cards? Local payment methods (LPMs). LPMs are mostly digital wallets that use account-to-account (A2A) payments and are not tied to cards!
Local payment methods will represent 59% of e-commerce transactions by value in 2028, up from 49% in 2023, accounting for the first time for the majority of transaction value online.
And just in case you’re wondering, e-commerce is forecasted to grow by some 65% during the same period.
👉TAKEAWAYS
🔹 The growing domination of LPMs over cards is coming.
🔹 LPM offerings meet the needs of consumers seeking to value security, convenience, and rewards.
🔹 Merchants like LPMs as they can acquire new customers, lower fees, and explore new functionality.
🔹 Governments/regulators who focused on the “sovereignty of payments” infrastructure and creating ‘healthier’ ecosystems.
🔹 🔥Sovereignty of payment systems means that governments and regulators are pushing against foreign organizations owning the supply of money.🔥 (Note that the ECB states this as a motivation for the digital euro)
🔹 Mastercard and Visa are increasingly less relevant!
🔹 Cards legacy tech can’t keep pace with local methods, and in many nations, payment does not use banks as the starting point.
🔹 Cards uniform approach to payments, where one size fits all, is flawed
🔹 Who is leading in the predictions for non-card-linked e-commerce? India with 67%, Africa and the Middle East 63%, Asia 61%, LatAm 61%, US and Canada 58%, and bringing up the back 47% for Europe!
👊STRAIGHT TALK👊
Credit card technology is going to be replaced. It’s not if, but when.
Credit cards' most important flaw is that they import a “one size fits all” solution to payments that doesn’t fit all nations.
Take India and China as just two examples of developing nations where cards never developed deep penetration into the population because the card model didn’t fit developing markets.
In response, both of these nations built their own LPMs!
Add to this the geopolitics!
Nations no longer want US infrastructure controlling their payment systems. This is particularly true for the Global South nations, which now view payment autonomy as a risk management exercise to ensure their payment systems aren’t shut down.
It’s not just Russia and Iran that believe this. Even the US’s staunch ally, the EU, stated that a key motivation for building the digital euro was to create a non-US-controlled payment system!
The transition from cards won’t be overnight, but card companies should be worried.
Given expensive merchant fees and a “one-size-fits-all” operating model, they cannot maintain their dominant position in payments.
Cards glory days are behind them, welcome digital wallets.
Thoughts?
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