Technologies and trends
shaping the future of commerce
USE ARROW KEYS OR SWIPE
Q4 2019 Edition - Article 02
From a payments and commerce perspective, digitizing the Next Billion Users refers to the accelerating adoption of digital payments by previously non-participating or under-participating populations. As digital payments proliferate on the backs of government programs, alternative networks, and maturing local schemes, the digital economy is growing to include new consumer groups with diverse cultural, socio-economic, and technological profiles. In this position paper, we explore some of the opportunities and challenges found in engaging this diverse market segment.
Developing a detailed understanding of a market is an early requirement for success in any business. In the case of the Next Billion Users, this exercise must be undertaken at a far more targeted level. Take for example M-Pesa, a mobile money initiative launched in 2007 by Safaricom in Kenya. Despite considerable achievements in raising consumer welfare in its home country, M-Pesa has (thus far) been unable to emulate similar levels of success in other neighboring geographies.
Simply put, there will be not a one-size-fits-all solution. As we develop products that engage the Next Billion Users, we will need to take into account all facets of the people, cultures, and technologies we are targeting. In doing so, we will unlock considerable value, not only for our own business but for the communities and geographies with which we engage.
“We expect emerging economies overall to represent 62% THE NEXT BILLION DEVICES of total consumption growth between 2015 and 2030, the equivalent of $15.5 trillion, with 22% of that coming from China alone.”
— McKinsey, 2018
THE NEXT BILLION PEOPLE
Roughly 90 percent of new internet users will come from emerging markets over the next 3-5 years.
Between 2014 and 2017, more than 500 million adults opened new financial accounts, including traditional banking and mobile money accounts.
Across the Next Billion Users, variations in socioeconomic status, languages, religion, and societal norms will contribute to differences in the types, volumes, and frequency of transactions ultimately made by them. Government disbursements and peer-to-peer commerce may overshadow traditional e-commerce. Transactions may be supported by fiat currency or something else entirely. What we think of as everyday purchases may include basic necessities like water, heat, and light.
To what degree consumers among the Next Billion Users are banked (or are willing to be banked) is also important. While some consumers will have traditional bank relationships through which “standard” bank products are available, many will access digital financial services via non-traditional sources like telecommunications carriers, retailers, government programs, NGOs, or other potential financial intermediaries. These represent opportunities to extend and build new partnerships and delivery models with
different bundles of services like healthcare and financial well-being.
A FORCE FOR GOOD
Financial literacy as it pertains to credit, lending and budgeting will vary significantly and sometimes unexpectedly across segments. Similarly, the degree of internet familiarity or savvy among the Next Billion Users will not be consistent. This is especially relevant in efforts to mitigate the potential for fraud and protect data privacy. One quickly comes to the conclusion that security and education will be foundational and differentiating elements of bringing the Next Billion Users into the digital economy.
Measuring the next billion users
NEW DELIVERY MODELS
The percent of adults with an account at a financial institution or through a mobile money provider has grown steadily from 2011 to 2017.
The total value of digitally influenced commerce in emerging markets is predicted to reach $3.9 T by 2022—more than doubling the volume observed in 2017.
THE NEXT BILLION devices
The demographic variation across the Next Billion Users is also reflected in the devices and technology available and in use today. This technology component presents another opportunity to reimagine how financial services are delivered and consumed.
One technology trend worth monitoring is the growing interest in and sophistication around voice-based interactions. Similar to the way that wireless networks have leap-frogged wire-line networks in developing nations, we might expect consumers to turn to voice over screen-based/text-based interactions.
Precipitating voice adoption will be the continued investment in the underlying communications network that today may only deliver intermittent and low bandwidth access (if at all). Short-term network limitations aside, voice can provide a viable mechanism to circumvent the larger challenge of literacy.
MANY DEVICES, MANY CAPABILITIES
For the time being at least, devices in market will vary considerably. In some geographies, older smartphones and even feature phones may be the primary device by which consumers access digital services. These devices—with lower RAM and processing power, smaller screens, and reduced battery life—will constrain and even prohibit access to solutions built with the latest and greatest technology in mind. At the same time, cheaper devices are making inroads with brands like Tecno and Mara offering sub-$150 smartphones capable of accessing popular apps like Twitter and Facebook. These lower-priced devices will help accelerate consumer adoption of digital solutions to lower income brackets.
THE ROLE OF PAYMENTS
Reaching the Next Billion Users of digital financial services will not be easy for any one entity. It requires a diverse aggregation of stakeholders, including governments, NGOs, community groups, and businesses at both the local and global scale. It requires building out the underlying infrastructure to support market adoption (acceptance). It requires monitoring participation of both users and providers to mitigate against predatory behavior and other bad outcomes (governance). And it involves a deep-set commitment to invest in a future where total returns will outpace the fiscal ROI.
Engaging the Next Billion Users also provides an opportunity to rethink our understanding of the role payments plays in people’s lives, in connecting buyers and sellers and in guaranteeing transactions. In reaching the Next Billion Users, especially for those in developing economies, we can test our underlying assumptions about payments and technology. With each new market, we have an invitation to explore new capabilities, processes and business models.
These experiments may ultimately help us rethink our core business and allow us to better prepare for potentially disruptive threats. This is not to say that we should ignore our existing assets and capabilities, but rather understand that our technology and solutions are the result of decades of evolution from a simple plastic card in a physical wallet. If we could do it all over again, what would we improve?
THE REAL KPIs
Always, at the heart of the matter is the underlying requirement to make people’s lives easier, safer, and more fulfilling. Payments—and the access and flexibility it represents—has the power to facilitate these virtues. Whether it is enabling long-distance transactions between farmers and buyers, enabling small and micro merchants to build and operate a business, or levelling the playing field for credit and lending to facilitate the delivery of community-improving capital equipment and services, our technology can and does make a difference. At this level, payments and the brands behind them, become less about transactions and more about inspiring growth and empowerment.
explores the technology and trends shaping the evolution of commerce in today’s digital-first world.
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on this topic or other digital topics of interest, please contact the Digital Future team at: email@example.com or your Mastercard account representative.