Cash usage in Asia sinks; More firms embrace digital payments

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The volume of cash transactions in Asia is falling to new lows driven by several factors, including the rise of next-gen technologies and smartphone adoption levels.

According to Worldpay’s report, physical money in Asia is expected to shrink by nearly 50% over a three-year period. By 2027, the company says physical cash will only account for 14% of total transactions, marking a new low for the offering that once held sway.

While the trend appears global, Asia is expected to record the fastest cash decline levels. French consultancy firm Capgemini projects that the Asia-Pacific (APAC) will record 1.46 trillion cashless transactions per year, dwarfing the entire North American market by a country mile.

India, the world’s most populous nation, is spearheading the push toward a cashless regime powered by its Indigenous Unified Payments Interface (UPI) system. Launched in 2016, UPI has become the hallmark of India’s cashless policy, processing over 131 billion transactions in 2023 alone.

China is also moving toward cashless transactions, with over one billion users on its private payment platforms, such as WeChat Pay and AliPay. By 2027, the number of cash transactions in mainland China is expected to tumble by 3%, exacerbated by its retail central bank digital currency (CBDC).

The Middle East and the Gulf countries are moving forward with several government-led policies tailored to reduce cash dependency. Japan, Thailand, Indonesia, and Malaysia are getting ahead with CBDCs, stablecoins, and alternative payment systems to also achieve a cashless regime.

While government-led initiatives have added significant steam toward dwindling cash metrics, rising smartphone adoption levels play a significant role. Alongside smartphone penetration, Asia is recording dizzying levels of credit card usage, financial inclusion, and Internet adoption.

Another trend in the ecosystem is the rise of a self-reliant system without a dependency on Western payment systems. India and China have since rolled out their indigenous payment networks to compete with MasterCard (NASDAQ: MA) and Visa (NASDAQ: V).

“Southeast Asian nations are working to establish an ‘Asian settlement bloc’ by creating a system that reduces dependency on foreign payment networks,” said Akira Yamagami, an analyst at the NTT Data Institute of Management Consulting.

A slew of challenges

Experts are exploring the sustainability of government-led initiatives designed to lower cash dependence. Furthermore, there are fears that the cashless systems will adversely affect individuals’ privacy rights while security issues continue to lurk in the shadows.

There is also the downside of “cryptoization” of the local economies, accentuated by the rising adoption rates of stablecoins and digital assets. To stem the tide, banking regulators in the region are throwing their hats in the ring with CBDCs retrofitted with programmability and offline use cases.

Firms embracing digital payments are more likely to be profitable, says report

As emerging technologies approach mainstream status, a new report opines that enterprises that adopt offerings like digital payments are more likely to be profitable than entities that stick to traditional models.

CPA Australia’s 2024 Business Technology Report says that 94% of firms embracing next-gen technologies will record an uptick in profitability compared to their peers. Based on a survey of 1,229 professionals, there has been a growing trend among enterprises to adopt new technology in recent years.

Enterprises are turning to digital payment systems in droves, while most respondents are integrating business intelligence software into their existing processes.

To protect their proprietary and customers’ data, 31% of respondents say they are increasing the size of their cybersecurity investments. India and Vietnam are leading the charge, but small-scale firms are lagging in the push to increase their cybersecurity investments.

Artificial intelligence (AI) appears to be a low-hanging fruit for enterprises seeking integrations with emerging technologies. Per the report, 41% of respondents confirm plans to integrate AI into their processes, citing the upsides of productivity, automation, personalization, and efficiency.

While small firms may grapple with steep costs, many cost-effective solutions are designed to even the playing field for enterprises. Firms across the spectrum will still have to contend with data privacy concerns and integration with existing technologies.

The report highlights the potential of innovative firms leaning on next-gen technologies to achieve their Environmental, Social and Governance (ESG) goals. Nearly 80% of respondents say emerging technologies will play a central role in reporting carbon emissions and monitoring their energy consumption levels.

A few outliers argue that the popularity of next-gen technology will have adverse effects, including triggering widespread industry layoffs and jarring data breaches for enterprises.

Blockchain makes steady progress

Enterprises are turning to blockchain to streamline their processes, citing the perks of decentralization and immutability.

Government-backed initiatives and private investment are playing a significant role in the rise of enterprise-based Web3 solutions. Firms adopting the technology are leaning on it for decentralized storage, automation via smart contracts, and tokenization use cases.

However, scalability and cost issues stand in the way of mainstream acceptance, while the lack of experts continues to be a niggling issue on the path toward digitization.

Watch: New age of payment solutions