Digital Payments: The Evolution of Currency

Over the last decade, the digital payments landscape has undergone a structural shift.

Consumer behaviors are changing—moving towards contactless and cashless transactions. Meanwhile, as the magnitude of COVID-19 grows, these trends have only accelerated.

Today’s infographic navigates the digital payments ecosystem, exploring its history and innovative technologies, and how it continues to grow as a solution of choice for trillions of dollars of transactions each year.

Digital Payments Timeline

The origins of digital payments began over 25 years ago with then 21 year-old entrepreneur Dan Kohn in Nashua, New Hampshire, who sold a CD over the internet via credit card payment.

• 1994: First online purchase is made
  A CD of Sting’s Ten Summoner’s Tales is sold for $12.48 on NetMarket.
• 1997: First mobile payments and first contactless payments
  Coca-Cola installs two vending machines in Helsinki that accept payment by text message.
• 1999: Paypal launches electronic money transfer service
  Early on, PayPal’s user base grew nearly 10% daily. Tesla CEO Elon Musk and venture capitalist Peter Thiel were among its co-founders.
• 2003: Alibaba launches Alipay in China
  Today, the mobile payment platform has witnessed stunning growth — leveraging digital wallets accepted by merchants in over 50 countries and regions.
• 2007: M-PESA creates the first payments system for mobile phones
  Kenya-based M-PESA launched its mobile banking and microfinancing service. Today, it has over 37 million active users on its platform across Africa.
• 2009: Bitcoin enables secure, untraceable payments
  Satoshi Nakamoto develops the first decentralized payment network in the world.
• 2013: WeChat Pay is rolled into the popular messaging platform
  By 2018, it surpasses 800 million monthly active users.
• 2014: Apple Pay launches
  By 2023, over $2 trillion of mobile payment transactions could be authenticated by biometric technology.

As technological advances continue to unfold, advances in digital payment technologies are creating ripple effects globally.

Geographical Differences in Adoption

Unsurprisingly, the sheer volume of digital payments has continued to grow at a double-digit pace, now surpassing the $4.1 trillion mark.

How do cashless payments break down across different countries?

Source: BIS

Singapore has the highest number of cashless payments per individual, averaging 831 cashless payments annually. The country’s robust e-commerce market is supported by high-speed, reliable internet and a young, tech-savvy population.

With e-commerce spending accounting for about 6% of South Korea’s national GDP, it is another leading purveyor of a cashless society. Meanwhile, Sweden is projected to become a cashless nation as early as 2023.

Pivotal factors—including core infrastructure, consumer behavior and rising revenues—provide a glimpse into the rapidly changing payment horizon.

The Future of Digital Payments

As transactions rise, a number of other technological innovations could be instrumental to shaping the evolution of the digital payments industry:

1. Messaging-app payments
   Facebook Messenger, WhatsApp, and WeChat can leverage the reach of billions of users.
2. Voice-activated commands
   Paying for gas, groceries, or retail via voice could soar.
3. Peer-to-peer (P2P) payments
   Bank of America and Visa are investing heavily into P2P partnerships.
4. Cryptocurrencies
   Over one million transactions take place daily on average.
5. Biometric payments
   Smartphone biometric security features could spur traction across digital payments.
6. Facial recognition
   May soon replace QR codes across retail, transit, and airports in China.
7. Crypto wallet adoption
   Blockchain wallet users are predicted to soar to 200 million by 2030.
8. Hardware & in-store interfaces
   Square, Stripe, and Clover are driving new mobile processing integrations.

The $4.1T digital payments ecosystem is facing a notable transition, catalyzed by a wave of global advancements and disruption. As the industry continues to widen its reach, consumers and investors alike can benefit from the shift towards a cashless economy.



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The Racial Wealth Gap

People of color have faced economic inequality for generations, and the recent wave of Black Lives Matter protests has renewed discussions on these disparities.

Compared to White families, other races have lower levels of income and net worth. They are also less likely to hold assets of any type. In fact, 19% of Black families have zero or negative net worth, while only 9% of White households have no wealth.

Today’s chart uses data from the U.S. Federal Reserve’s triennial Survey of Consumer Finances to highlight the racial wealth gap, and the proportion of households that own different kinds of assets by racial group.

Asset Types Held By Race

The financial profile between racial groups varies widely. Below is the percentage of U.S. families with each type of asset, according to the most recent survey from 2016.

Vehicles are the most common asset across all racial groups, followed by a primary residence.

However, the level of equity—or home value less debts—families have in their houses differs by race. White families have equity of $215,800, whereas Black and Hispanic households have net housing wealth of $94,400 and $129,800 respectively.

In addition, White households are more likely to hold financial assets such as retirement accounts, family businesses, and stocks. These assets are instrumental in building wealth, and are prominent in the wealth composition of America’s richest families.

With fewer people of color holding these assets, they miss out on higher average returns than low-risk assets, as well as the power of compound interest. These portfolio differences are striking, but they are not the most important contributing factor in the racial wealth gap.

Demographic and Economic Variations

White households are also more likely to have demographic characteristics that are associated with wealth. According to the U.S. Federal Reserve, they are:

• Older, with more than half of households age 55 and up
• More highly educated, with 51% having some type of degree
• Less likely to have a single parent
• More likely to have received an inheritance

For example, 39% of White heads of households have a bachelor’s degree or higher, compared to 23% and 17% for Black and Hispanic household heads, respectively. However, education doesn’t fully explain the wealth inequities.

Enormous wealth disparities exist between families with the same education level. Even in cases where Black and Hispanic household heads have obtained a bachelor’s degree, their families’ median wealth of $68,000 and $78,000 respectively is still lower than the $98,000 median wealth for White families where the head has no bachelor’s degree.

After accounting for demographic factors, researchers still found there were considerable inequities. What, then, could be primarily responsible for the racial wealth gap?

The Income Gap

While previous research found that the wealth gap is “too big” to be explained by a difference in income, a recent study from the Federal Reserve Bank of Cleveland offers a new perspective. Focusing on White and Black U.S. households only, researchers analyzed the dynamics of wealth accumulation over time, as opposed to previous studies that considered short time periods.

They found that income inequality was the primary contributor to the racial wealth gap. According to the model, if Black and White households had earned the same labor income from 1962 onwards, the Black-to-White wealth ratio would have reached 0.9 by 2007.

Moving forward, the study concludes that policy changes will likely have a positive impact if they address issues contributing to income gaps. This includes reducing racial discrimination in the labor market, and creating programs, such as mentorships, that improve environments for specific racial subgroups.