12 May 2021
The Democratisation of Payments
Today’s digital payments landscape has evolved into a complex network of relationships and processes that work in concert to enable the safe and secure movement of money from a customer to a merchant. Whether we swipe our cards in a store or key in our payment information on a website, a chain of events involving several parties kicks off: a merchant acquiring provider captures the customer’s payment details securely and encrypts it, passing it onto an acquiring bank (i.e., the merchant’s bank) via a processor, which then typically communicates the request to a card network (think Visa or Mastercard). The card network then relays the information to the issuing bank (i.e., the customer’s bank) via an issuer processor, and once the issuing bank confirms the funds are available, the confirmation round trips back down this chain and the transaction is processed, all in a matter of seconds. Performing digital payments is so ubiquitous and seamless that it belies the underlying complexity that it involves. As the sector has grown, we have witnessed a myriad of variations to the basic authorisation and settlement processes, all with the aim of affording cheaper and better services for merchants and consumers, and ultimately furthering the democratisation of payments.
We believe that the sector is poised for continued growth and as we begin to emerge from the COVID-19 pandemic, taking stock of the new landscape we all live in, one fact is patently clear: while payments have seen a rapid expansion over the past decades, the pandemic has only served to accelerate the adoption of cashless payments. According to the World Bank, in LMIC1 economies, over 40% of adults who made in-store or online payments using a digital form factor (i.e., card, phone, or online) had done so for the first time since the beginning of the COVID-19 pandemic. These percentages translate into staggering numbers in growth markets: in India, more than 80M consumers made their first digital transaction after COVID-19, while in China more than 100M adults did. Today, over 60% of adult consumers globally make or receive digital payments, with this share growing from 35% in 2014 to 57% in 2021.
As part of this paper, we aim to explore the developments in technology, regulation, and the resulting evolution in business models, as well as share our perspectives on the future for this everchanging sector which has been a mainstay for Apis: payments have been our largest single area of focus comprising approximately 30% of our exposure in Apis Growth Fund I and 40% of our exposure in Apis Growth Fund II. We have endeavoured to play across value chains, collaborating with both issuers and acquirers – online and offline – through our investments across Europe, Africa, South Asia, Southeast Asia, and the Middle East. Our conviction in this space comes from its compelling secular tailwinds, potential to scale, and ability to improve access to higher-quality Financial Services for millions of businesses and consumers across our markets.