Banks and tech players race for market share in mobile payments

The accelerated adoption of mobile payments in the U.S. and India during the pandemic is not a one-off spike and will continue, as banks, financial technology companies and tech giants are proactively competing for users from digital channels, Market Intelligence analysts Nimayi Dixit and Sampath Sharma Nariyanuri said Oct. 28 during the latest episode of Market Intelligence Live.

In 2020, global payments made via digital wallets grew faster than those made on physical cards, and for the first time, digital payments made in stores exceeded the usage of cash, Dixit said. U.S. mobile payments companies are riding the momentum to attract and retain users by adding various financial products, such as stock trading features, crypto wallets and savings accounts. Market leaders in India, especially Walmart Inc.-owned PhonePe, could also use the same pattern to push further into financial services and diversify their business lines, according to the analysts.

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The rapid growth not only benefits fintechs specializing in mobile payments and technology companies, but also prompted banks to proactively race to court mobile users. Zelle, a mobile payment network used by 1,000 U.S. financial institutions, processed $120 billion in the second quarter, compared to $58 billion by its main nonbank competitor, PayPal Holdings Inc.-owned Venmo.

"Zelle is a good example of banks working together to compete with the nonbank fintech players and some of the new payment modalities ... and being pretty successful at it," Dixit said.

In India, banks will continue to carry the burden of stagnant growth of credit card usage, since consumers are more regularly using mobile phones for payments, Nariyanuri said. In 2020, transactions completed via debit and credit cards fell 14% year over year to $170 billion in India, whereas mobile payments initiated by payment apps rose 67% to $478 billion.

The credit card market in India still has room to grow, but it is unlikely that credit card usage will grow at the same pace as it had in the past, Nariyanuri said. He estimated that the ongoing pandemic may have shaved off $524 million in interchange revenues for credit card issuers.

To drive their card business, banks in India are turning to technology companies for partnerships, including issuing co-branded credit cards tied to nonbank mobile payments applications.

Click here to read the 2021 U.S. Mobile Payments Market Report and the 2021 India Mobile Payments Market Report.

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