Cash, credit, or digital? Regional differences in payment methods

U.K.-based folding-bicycle company, Brompton, has enjoyed significant success worldwide. This is particularly true in Asia, where people have been pedaling the brand’s iconic bikes through cities across the continent for more than 20 years. This success is largely a testament to the bike maker’s expansion strategy, which has centered around understanding the nuances of new markets. 

This has always included ensuring that new-market customers could pay for their bikes in ways to which they’re accustomed. In countries like China, digital wallet payment options like WeChat and Alipay are overwhelmingly popular, particularly in larger cities. It comes as no surprise that options such as WeChat have become a key channel in Brompton’s sales process. 

Customer payment preferences differ greatly around the world, from region to region, country to country, and even city to city. These differences may stem from historical, cultural, economic and political factors. Whatever the case, understanding them and the forces behind them is key to setting up local operations that complement market nuances. This will improve your shot at a successful foray and help set the stage for sustainable growth. 

Payment preferences change over time due to a number of factors, from newly available technologies to shifts in global tides, such as the COVID-19 pandemic. The events of 2020 accelerated the growth of payment methods that were already gaining momentum. This was especially true for digital wallet services including Google Pay, Apple Pay and PayPal, in particular. 

In this article, we will take a closer look at the five global regions—North America, Latin America (LATAM), Europe, Asia Pacific (APAC), and the Middle East and Africa (MEA)—and their diverse payment preference landscapes.

North America

Card payments, particularly credit cards, are the most preferred payment method in the North American continent. This tends to be true of both in-store and online transactions. In the U.S., cards make up 67 percent of in-store transactions and 76 percent of all online transactions. Credit cards are popular partly because many offer reward schemes. They also let consumers finance more expensive goods and services over time.

U.S. online shopping payment method preference 2018 (Source Statista)

While digital wallets are increasing in popularity, credit and debit cards are likely to remain important for North American buyers. This is partly because many digital wallets need to be linked to pre-existing credit or debit card in order to facilitate transactions.

Canada boasts the second-highest number of electronic payments in the world, just behind Sweden. The use of cards and mobile payments is on the rise. Fifty-three percent of Canadians reported using these payments more often since the COVID-19 pandemic.

Still, cash remains an important method of payment across the continent. After cards, it is the most popular in-store payment method in the United States. Researchers estimate that many Canadians have increased the amount of cash they keep at home. Canada also boasts the second-highest number of ATMs per capita in the world. 

Buy now, pay later (BNPL) options are also increasing in popularity, particularly during holiday seasons. Seven percent of U.S. shoppers said that they planned on using this option during the 2021 holiday season.

Recommendations:

1. Credit and debit cards are likely to remain your primary payment channel for the foreseeable future. Ensure that you accept all major card payment types.
2. Consider integrating digital wallet payments, especially if most of your customers are using cards as a primary form of payment.
3. Financing options including BNPL are likely to remain relevant, particularly if you’re selling higher-priced goods. Consider integrating  these options into your mix of payment offerings.

Latin America

Cash is still king in Latin America (LATAM). One of the biggest reasons is the fact that up to 65 percent of adults in the region are unbanked. This means that they do not have access to basic financial services or bank accounts. A 2018 study by New Europe found that 85 percent of transactions in LATAM were cash-based. 

The study also found that many people remain unbanked due to an apparent lack of trust in banking and financial institutions. This has driven more companies to create and offer alternative payment methods that allow people to make cash payments when purchasing goods online.

The solutions vary from country to country. In Argentina, one such example is Rapipago. When customers select the Rapipago payment method on a merchant’s website, the app generates a barcode, which can then facilitate a cash payment at a kiosk or any participating payment point around the country. Similar platforms include Boleto in Brazil and Redpagos in Uruguay.

This distrust along with the COVID-19 pandemic continues to push consumers to e-commerce, many for the first time. It is estimated that over 10 million people made their first-ever digital purchase during this period. In response to people’s transaction preferences, LATAM countries are working on finding ways to make digital payment methods more accessible and popular. Some examples include:

• Mobile instant payments — This involves using mobile phones to make direct payments. PayPal offers this service, but there are more local options that enjoy greater popularity, such as OXXO Pay in Mexico, MercadoLibre in Argentina and BBVA Wallet in countries like Mexico, Peru and Chile.
• Electronic fund transfers — This is particularly popular in Colombia, where people often prefer to make payments via online bank transfers. One particularly popular solution in Colombia is PSE, or Pagos Seguros en Linea. 
• Prepaid cash cards — This method allows people to purchase debit cards that can be loaded with funds prior to making a purchase without the need to link to a traditional bank account. 

Recommendations:

1. If you’re running an in-store operation, be prepared to deal predominantly with cash.
2. Learn which online solutions are big in the country or countries you’re working in and be sure to integrate them into your systems.

Europe

Europe has a very diverse payment landscape. The continent hosts 44 countries with economies and cultures of varying shapes and sizes. This means payment preferences can vary significantly. Generally speaking, Europeans tend to favor credit, debit, prepaid cards or cash when buying in stores. Mastercard reported that 78 percent of all  card payments were contactless during the Coronavirus pandemic, as merchants and shoppers sought out shopping experiences with as little contact as possible. 

Cash is still very important, particularly since some parts of Europe are home to relatively large populations of unbanked people. Thirty-three percent of Eastern Europeans, for example, do not have access to typical banking services. On the other hand, countries including Sweden are arguably on course to become a cashless society.

When purchasing goods or services online, they opt for digital wallets like PayPal or card payments. Mobile payment applications and mobile phone e-commerce have also become quite popular in recent years, often through partnerships with local banks.

Mobile phone payment popularity across Europe (Source: PostNord)

In 2020, the European Union launched the EU’s Digital Finance Strategy. This package includes a strategy and legislative proposals aimed at promoting a more digitalized payment landscape across the Union. It covers crypto-assets, digital resilience and seeks to build “a competitive EU financial sector that gives consumers access to innovative financial products while ensuring consumer protection and financial stability.”

Recommendations:

1. Since payment methods differ widely from country to country, it is important to really understand the nuances of each and every country in which you’re planning to expand.
2. Digital wallets are predominant in Europe and are likely to grow rapidly in the coming years. This is especially true of mobile phone-based payments. 
3. If expanding into EU countries, be sure to keep an eye on any new strategies or legislation that might affect your business. 

Asia Pacific

The Asia Pacific (APAC) region is home to 60 percent of the world’s population and includes massive markets such as China, India and Australia. It is a region with a stark digital divide as modernization and digitalization are growing rapidly on the one hand, while a large percentage of people remain limited in their access to basic financial services. 

In China, the most popular payment method by far is through mobile phone applications. Perhaps the most popular are WeChat, a social network platform, and AliPay. In 2019, WeChat exceeded 1.15 billion monthly active users (MAU). Meanwhile, the daily averageof payments increased by 76 percent, and the average daily number of users increased by 70 percent.

According to a survey by GlobalData, Thailand is the top country in the world for mobile wallet usage, nearly 94 percent of survey respondents said they had a mobile wallet and had used it in the past 12 months.

Australia is also seeing a rise in digital wallet popularity. The Commonwealth Bank of Australia reported a 17percent increase in digital wallet usage during February and March 2020. This equates to triple its typical growth rate.

Cash is still very prevalent in some parts of the region despite taking a hit during the pandemic. In Japan, the government offered discounts to anyone who made retail purchases using non-cash methods. Despite this, cash is culturally significant in Japan. This includes Tansu Yokin, the practice of keeping large amounts of cash in drawers at home. 

Over half of India’s population does not have access to digital connectivity, despite the country being the second-largest internet user base in the world. The lack of access is mostly common with people living in rural communities. Because of this, cash remains very popular throughout the subcontinent. The Reserve Bank of India found that most people prefer cash since it is a more reliable payment method in places without an internet connection. They also reported higher levels of digital unfamiliarity. It is predicted that cash demand in India will grow 23 percent by 2025.

Recommendations:

1. As in Europe, payment landscapes across APAC vary greatly from country to country. There is also great variation between big cities, suburbs and potentially rural target markets.
2. You cannot ignore app-based payments like WeChat or AliPay, especially if you plan to do business in any big city across Asia.

Middle East and Africa

The MEA economies have been changing rapidly even prior to the pandemic. The events of 2020 just accelerated many of them. Cash is still the most popular payment in both POS and e-commerce purchases, but things are changing fast. E-commerce has been particularly slow to develop in this region, but, as happened everywhere else, the need for things like groceries during lockdowns caused quite the shift. There are increasing numbers of homegrown e-com services competing for what the future has in store.

MEA is considered to be one of the smallest card markets in the world. That said, cards are projected to grow rapidly there in the coming years based on increasing familiarity and popularity.

QR code payments are also on the rise, particularly as governments of countries like Saudi Arabia and Ghana have introduced unified QR code payment systems to facilitate this and to promote greater transparency. In line with an emerging global trend, digital payments and wallets are also rapidly increasing in popularity. In the Middle East, 58 percent of consumers see it as a preferred payment method. 

Digital wallets are projected to become the most preferred payment method in MEA in the next five years. (Source: McKinsey)

The same can be said of South Africa, a country in which mobile payments are becoming more commonplace. It has even gained the attention of Apple Pay, which has expressed interest in entering the market. Cash still accounts for more than 50 percent of transactions in the country, as it is preferred by older generations and small market operators. This means it is still likely to occupy a large portion of payments for the near future.

Recommendations:

1. While cash is still important, digital wallets and QR code payment methods are on the rise. It would be wise to prepare for this in advance. 
2. Experts predict a boom in credit and debit card usage in the coming years. It is best to plan ahead for this.

Consider regional payment preferences in your expansion strategy

There are clear payments trends unfolding globally, such as the increase in popularity of digital wallets and the decrease in cash usage. The pandemic has accelerated many of these trends and has bolstered e-commerce activity around the world. 

Despite many of these similarities, there are clear differences between regions, countries and even cities when it comes to payment-method preferences. That’s why it’s important to factor in market research that explores the preferred payment methods drafting your expansion strategy into new countries and markets. 

This research should include an understanding of the prevalent payment methods in that area, the emerging trends, as well as predictions for the future. Answering these questions will help you tailor your offering in a way that ensures you are able to meet your new clients where they are, allowing them to pay for your goods or services in a way with which they’re comfortable.