Who controls how people pay for goods or services? Is it the banks, with their long-standing dominance over financial transactions? Or the card schemes, the silent forces behind nearly every swipe and tap?
It’s probably the payment service providers (PSPs), the fast-moving fintechs, that are reshaping digital payments. Or are the consumers dictating what works and doesn’t with their choices?
Local payments have evolved rapidly, with each player fighting for influence. Banks provide the infrastructure, card schemes enable global transactions, PSPs drive innovation, and consumers decide what sticks. But who holds the most power in this ecosystem? To answer this, we must first gain clarity on what the local payment method is all about.
What are local payment methods?
Local payments have surged as the global economy becomes more interconnected. In 2023 alone, mobile wallets accounted for approximately 50% of the worldwide e-commerce transactions.
This makes them the most popular payment method. Mobile wallets are followed by credit card transactions with a 22% market share.
Local payments form a large part of the regionally preferred payment methods. Also referred to as alternative payment methods (APM), local payments cater to unique financial habits, preferences, and regulatory landscapes of diverse countries. They establish a bridge between global merchants and local consumers.
Local Payment Spread
The expansion of local payment methods is driven by digital transformation and ever-changing consumer preferences. Once applied to a specific region, these payment solutions can become a global phenomenon.
They are tailored to regional preferences and play a significant role in global commerce. For instance, iDEAL dominates online transactions in the Netherlands, while MB Way is widely used in Portugal.
Mobile payments are also prevalent in sub-Saharan Africa, with countries like Kenya seeing an adoption rate as high as 72%. In the United States, credit cards remain the preferred payment method with a 50% market share.
Enabling Factors of the Local Payments?
The way we pay for things is rapidly evolving. At the centre of this shift, local payment methods are driving them. But is the cause of this?
- E-commerce is Going Global
Businesses are no longer serving just their local customers; they are also expanding across borders. But here is the thing: consumers want to pay through the methods they’re used to.
Whether it’s Brazil’s Boleto, India’s UPI, or Kenya’s M-Pesa, local payment methods are key to unlocking new markets.
If a business doesn’t offer the right payment options, it risks losing sales before the checkout is complete.
- Mobile Adoption is Changing the Game
In places like Southeast Asia, Africa, and Latin America, digital payments aren’t just an option but the norm. Many consumers in these regions don’t have access to traditional banking or credit cards, but they do have mobile phones.
This is why digital wallets like TrueMoney in Thailand and OVO in Indonesia are thriving. As smartphone usage continues to grow, so does the preference for mobile-first payment solutions.
- Trust and Preference is Everything in Payments
People stick to what they trust when money is involved. In some countries, consumers hesitate to use international payment options due to concerns over fraud and high transaction fees. Local payment methods feel safe and reliable, leading to higher conversion rates for businesses.
- Regulations through Government Involvement
Regulation plays a huge role in shaping payment systems. Many countries are pushing for local payment solutions to reduce reliance on foreign networks. This also helps them to keep transaction data within their borders. Likewise, compliance requirements such as anti-money laundering make it easier for businesses to operate when integrated with local payment methods.
Compliance requirements such as anti-money laundering (AML) and data privacy laws make it easier for businesses to operate when they integrate local payment methods.
- Local Payment Methods Save Money
For businesses, every transaction fee adds up, and international payment gateways are associated with hefty charges.
On the other hand, local payment options are designed for the local economy. This means lower fees and fewer currency exchange headaches, making it a smart choice for businesses looking to scale efficiently.
- Technology is Moving Faster
Fintech innovation is making it easier to roll out and adopt local payment solutions. Brazil’s Pix, for instance, enables instant, free transactions. It is one of the most popular ways to pay in the country. Similar innovations, such as India’s UPI and Europe’s SEPA, prove that local payment systems are here to stay.
- Drive For Financial Inclusion
A significant portion of the global population still doesn’t have access to traditional banking. However, that doesn’t mean they’re not transacting.
Mobile money services and digital wallets are bridging the gap, allowing millions to participate in the digital economy without a bank account. In Africa, mobile money is a lifeline.
Platforms like M-Pesa enable seamless transactions from groceries to business payments.
Who is driving local payments?
Behind every tap, swipe, or click is a complex network ensuring local payments are processed seamlessly. Banks are at the heart of payment systems. They offer accounts, issue payment instruments, and process transactions.
The bank ensures money moves to the appropriate destination when you use your card or make a transfer.
Their function is not limited to this as they also participate in local payment networks and keep transactions flowing smoothly within the financial system.
However, the rise in e-commerce and online transactions has led to an increase in the number and role of payment service providers.
Payment service providers allow businesses to accept several payment methods through a single platform. Payments such as credit cards and mobile wallets can be accepted without creating diverse payment options.
This drives a much easier payment system for merchants. Customers also get to choose their preferred payment option in the process. Plus, PSPs also enable businesses to accept payments from international customers.
Additionally, card schemes, such as Visa and Mastercard, make up the networks that facilitate card-based transactions. They establish rules and infrastructure that allow cards to work with different merchants worldwide. Card schemes ensure that transactions are processed according to standardised procedures. This ensures that payments are reliable and universally accepted.
So, collaboration among banks, PSPs, and card schemes is crucial for establishing a robust local payment system. While banks provide foundational financial services, PSPs offer innovative solutions that allow for several payments through a unified platform. And card schemes ensure seamless interaction in card transactions. This harmony ensures that your payment process is seamless. So, whether you’re shopping online or at a local store, payments are smooth and secure.
Wrap Up
Local payment methods aren’t just growing but reshaping the way people and businesses interact with money. While several factors contribute to the drive and acceptance, the core factors include convenience, trust, regulation, and technology. What’s clear is that no single player drives local payments alone. Collaboration between the entities behind the scenes ensures transactions are as effortless as possible.
[Featured Image Source: fondly]
About the Author
Banji A. Kayode is a fintech expert specializing in merchant acquiring and payment system infrastructure for banks and major operators. With deep experience in digital payments, he has been instrumental in driving financial inclusion and innovation within the fintech sector. A recognized thought leader, Banji frequently shares insights on emerging digital financial services and cutting-edge payment technologies. Beyond his industry contributions, he serves as a trusted advisor to fintech startups, offering strategic guidance on product development, market entry, and regulatory compliance.