Dan Roarty: There’s an old saying that cash is king, but that might not be true for much longer. Cashless commerce is rapidly becoming the new king. The digital advancements that we’ve seen in financial technology—or fintech—are having a massive impact on individuals and businesses, large and small, around the world.
With me today to talk about fintech is William Johnston, our research analyst specializing in financials. So, William, can you start by telling us what fintech is?
William Johnston: Payment technology was really born out of the consumer installment credit products in the US in the 1950s. But payments have evolved now into quite a complex digital web. I mean, this has seen a big growth in e-commerce between a broadening group of people at all levels—from business to consumer, business to business, government to consumer and person to person. And technology companies are now looking to exploit each part of the value chain and helping customers and banks and businesses speak to each other across the spectrum.
DR: 80% of all transactions globally are still conducted with good old-fashioned cash. So, what do we think is going to drive this shift away from physical cash and towards digital payments?
WJ: We’re seeing a significant growth in cross-border flows, and the vast central bank printing in the face of an economic slowdown is challenging national currencies with the birth of borderless software cash such as Bitcoin. So, the revolution in digitalization is unfolding with rapid growth, and transaction value is growing around 24% per annum over the last three years.
DR: Where’s the strongest growth taking place right now?
WJ: Asia represents the biggest opportunity—almost half of all payment revenue. And China is leading the way through its state-endorsed payment networks. We’re seeing social media networks even looking to create their own cryptocurrencies to monetize their vast customer bases. But also, in the face of COVID-19, payment trends are rapidly evolving as individuals who have never ordered groceries [or] paid bills online are being introduced to the world of digital payments.
DR: You mentioned COVID. How do you think COVID is going to impact the fintech space?
WJ: We believe that COVID-19 will accelerate a lot of the preexisting trends and shift towards digital payments globally. China is even looking to launch its own digital currency. And if this innovation comes to the fore, you could see a significant reduction in cash usage.
DR: How are the fintech companies themselves responding to COVID?
WJ: Fintech companies are fast tracking new Web-based platforms to help sellers and to also leverage the tap-and-pay technologies. Fintech companies across the world are acting as conduits to assist individuals with CARES Act-type payments, but are now handling quite a lot of consumer deposits received from governments and so, challenging the traditional forms of finance.
DR: How does the shift to digital payments and fintech impact society more broadly?
WJ: Digital payments opens up access for individuals and small businesses to e-commerce and other facilities, such as bill payments to utilities. But this also helps to drive down the costs of payment transfer as competition drives greater efficiency. Payment technology is also boosting financial inclusion to those that are not connected to the digital banking systems.
DR: Any last thoughts you want to share on fintech today?
WJ: We see a significant opportunity for financial technology companies to challenge banks in the traditional areas, such as checking accounts, deposit taking, lending and even securities trading. I also see significant opportunities in the micro- and small-business areas that make up to 50% of global GDP, and they employ up to 70% of workers.
DR: Thanks, William. It’s really interesting to hear about a theme that has both positive economic implications and also positive social implications.