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Is cash the key to digital financial services growth?

Integrating cash into eWallets is critical to attracting consumers that are new to the world of online payments.

The rise of digital financial services

The growth of digital financial services as legitimate competitors to traditional incumbent banks and payment methods has been swift over the past decade.

Led by China, but followed increasingly by the US, the value of the global mobile wallet market is set to pass $1 trillion this year, and $2 trillion by 2023. Neobank adoption is growing at a similar rate; almost 80 million US citizens says they already have or are planning to open a digital-only bank account, and in the UK the number of adults with a digital-only bank account is expected to double to over 23 million.

And the impact of COVID-19 is only going to accelerate this already evident trend. In our latest article series Lost in Transaction: The impact of COVID-19 on consumer payment trends we asked 8,000 people from the US, UK, Canada, Germany, Austria, Italy, and Bulgaria to tell us how the social and economic consequences of COVID-19 would affect their spending habits. 38% said that they would be shopping online much more even after the end of the pandemic, and this percentage is much greater in the US (49%). Convenience (65%) was an influential factor for significantly more consumers than safety concerns (40%).

The convenience and customer-focused user experience of digital financial services will also be a draw for these consumers that no longer feel the need to interact with their bank in person.

Also, as well as a general shift towards NFC payment methods, a preference for mobile wallets ahead of contactless cards is also developing. 36% of consumers agree that mobile wallets are more secure than contactless cards because payments require biometric authentication, and 23% agree that having a mobile means they have no need for a contactless card. These sentiments were most strongly felt in the US; 44% of US consumers said mobile wallets were more favourable due to biometric authentication and 33% said having a mobile wallet negated the need for contactless cards.

As a connector enabling both these preferred physical and digital transaction methods, mobile wallets are even more appealing. 

How does cash fit into this new landscape?

One specific example of how the general trend of moving to digital services is changing the payments ecosystem is the evolving relationship between consumers and cash.

Despite the emergence of digital financial services as the preferred method of banking and payments for many consumers, they are still clear that cash remains a central component to their spending plans. For digital wallets and financial services, integrating cash into the product offering to strengthen it rather than testing consumers’ loyalty by directly competing against can quickly turn into a competitive advantage.

93% of consumers in our recent survey told us that they still take cash from ATMs, and 72% said that they would be worried if they could no longer access cash. Furthermore, 40% of consumers said they would buy products and services online with cash if they could, and 36% said they would shop online more if cash was an available payment method.

The desire to spend cash online is particularly strong in the US. 47% of US consumers said they would buy products online with cash if it were easy to do so, and 43% of US consumers said they would shop online more if they were able to pay with cash.

Integrating cash into digital financial services

18% of consumers have begun shopping online for the first time since the outbreak of COVID-19. In the US this figure even rises to 25%. One key reason that these consumers haven’t spent money online previously is that they are wary of sharing their financial details with online merchants. Overall 48% of consumers said that they were concerned about entering their financial details to make a payment and 56% said that they felt more comfortable paying using a prepaid card or voucher where their financial details were not shared with merchants. So it understandable that, these consumers would want to use cash as an alternative to bank cards wherever possible.

Digital wallets and banking apps that enable users to top up their accounts with cash satisfy this need for consumers who want to use cash to pay online for products and services in a convenient manner. By integrating an eCash solution with a dense network of physical pay points, digital financial services can minimise overheads, stay digital, and focus on delivering the optimum customer experience. They also can target a new market of customers that want to engage with digital merchants and contactless payments methods through cash.

And this target market is only going to grow. Consumers will continue to be drawn to digital commerce and NFC mobile wallets, both due to the long-term impact of COVID-19 and other factors such as the greater adoption of smartphones and the rollout of 5G. So those consumers who prefer to spend cash as they either do not trust that their data is secure or have no access to traditional bank accounts or cards will be drawn to eCommerce further, creating an even more attractive growth proportion for digital financial services.

The digital financial services providers that understand and meet the demands of these consumers will not only generate greater brand loyalty with their existing customers, but also have a competitive advantage as traditional high street consumers migrate online.