Emerging Markets

Countries in North America and Europe have long been accustomed to setting worldwide standards when it comes to commerce, but things are starting to change. As the world becomes more interconnected through technology, new markets are beginning to flex their economic muscle, and borders are ill-suited to hold back the forces of innovation and consumer demand.

Emerging markets are having a direct influence on the way digital payments are negotiated, even as familiar challenges such as fraud and disputes resurface in new forms. How are emerging markets across the globe changing the face of digital payments, and how are these markets dealing with the ever-present problem of fraud? 

Technology has accelerated the pace of economic changes, and the bigger and more established an institution is, the slower it can be to adapt and innovate in response to these changes.

This is proving to be the case in many emerging global markets, where banks and credit card networks are finding their share of the payments market quickly overtaken by smaller, more agile companies offering novel payment solutions. 

The biggest driver of change is the widespread global adoption of e-commerce, which has weakened the dominance of cash payments in markets where traditional bank accounts and credit cards are rarely used.

Consumers in these markets can’t make purchases over the internet with cash alone, and pandemic closures over the last few years convinced many of the last holdouts to finally seek out digital payment options. In 2014, only 35% of consumers in developing economies were making digital payments. By 2021, that share had grown to 57%. 

At the same time, digital payments are more vulnerable to technologically-assisted fraud attacks, and fraudsters aren’t about to give new consumers in emerging markets a pass. Instead, they’re trying to exploit the fact that merchants and consumers in these markets don’t have a long history of payments fraud to inform their defenses. 

For new digital payment systems to thrive in emerging markets, fraud protection needs to be baked in as early as possible. 

What Payment Systems are Being Adopted in Emerging Markets? 

The new digital payment platforms seeing the biggest rise in emerging markets are digital wallets, QR code scanners, and other apps that allow consumers to make payments with their mobile devices. 

While many new payment platforms are being developed for use by “unbanked” consumers, they aren’t the only ones fueling the surge. Many financial institutions in these markets have been responding to consumer demand—and economic pressures—by making it easier for people to acquire traditional bank accounts.

These, in turn, have been leading to increased adoption of digital wallets, peer-to-peer fund transfer apps, and other platforms that join traditional funding systems to cutting-edge contactless payment methodologies.

While credit and debit cards may be facing unprecedented competition, you can’t count them out yet. Card networks are having some success at reaching consumers in emerging markets. Payment card ownership is expected to increase by more than five and a half percent in Indonesia and the Philippines by 2024, and by the following year payment card penetration is projected to hit 50% in Vietnam. 

Why are Consumers in Emerging Markets Choosing Digital Payment Systems? 

Two of the biggest factors driving the adoption of digital payments are the COVID-19 pandemic, which necessitated contactless payments in many markets, and the continued growth of e-commerce—which also received a boost due to the pandemic. 

There are other motivating causes as well. Local governments have been encouraging digital payments in recent years, with a mind toward improving interoperability and capturing more tax revenue. Fintech startups (as well as established providers like Alibaba) have been more than willing to take up the banner of digital payments, making them more appealing to consumers by building in a plethora of add-on features.

Consumers in Africa, Latin America, and Southeast Asia have access to widely-used wallet apps that also connect them with e-commerce, food delivery, transportation, messaging, and other beneficial services. 

Some platforms also include financing options such as Buy Now Pay Later, which gives consumers more flexibility when it comes to making larger purchases. 

What Challenges Do Consumers, Merchants, and Payment Providers Face in Emerging Markets? 

Consumers and merchants in emerging markets are finding themselves dealing with the perennial problem of fraud. Meanwhile, digital payment providers are not only stuck dealing with fraud and workable dispute policies on their end, but also the challenges of competition and profitability. 

Payment providers are adding non-payment services to their platforms not only to encourage consumer adoption, but also because these services offer more avenues for monetization. Consumers will always look for ways to avoid paying fees just to make a simple payment transaction, but fees are accepted and tolerated when it comes to services like delivery, transportation, insurance, and investment. 

How are Emerging Markets Being Impacted by Digital Payment Fraud? 

Fraudsters are always drawn to environments with a growing or already-high transaction volume. This is especially true when the participants do not have a long history of dealing with fraud. Consequently, fraud is expanding rapidly in emerging markets. 

According to a survey carried out in the Latin America, Europe/Middle East/Africa, and Asia-Pacific markets, nine out of ten companies have been affected by fraud within the past year. Overall fraud has increased by 37% during that time, with attacks involving digital wallets, QR codes, cryptocurrency, phishing scams, and fake accounts. 

The study also revealed that only 42% of providers use multi-factor authentication to prevent fraud. This is one of the most effective ways to stop fraudsters, but it also causes delays and friction on the consumer end, which can lead to unsatisfactory experiences that can drive consumers toward platforms that feel faster and more convenient to them. 

Balancing security against the customer experience is always one of the biggest challenges in fraud management

Merchants must be sensitive to the preferences of their local consumer base when they implement protective measures. In some situations, biometric authentication and AI-based fraud detection may prove to be viable alternatives. 

Conclusion 

The world of digital payments is changing rapidly, and emerging markets are leading the way instead of following along with established practices. To reach consumers in these markets, merchants need to understand the logic and function behind their different payment systems and implement customer-friendly options. At the same time, you can never afford to lose sight of fraud risks and the costly payment disputes they inevitably cause. 

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