Data Snack: Businesses view digital payments favorably, but are wary of associated risks
- Businesses are adopting digital payments in increasing numbers, motivated by rising consumer demand and the promise of operational efficiencies.
- With digital payments, however, businesses also open themselves up to new risks. Over the last five years, the FBI reports that cybercrime losses in the US amounted to $18.7 billion.
According to the World Bank, two-thirds of the world’s adult population is now making payments digitally. What’s more interesting is that adoption in developing economies has also grown consistently, claiming a sizable 57% of the global population using digital payments.
The pandemic is generally understood to have been a key driver for the penetration of digital payments. MIT Technology Review acknowledged that in a recent report produced with Visa, although adding that the growth in digital transactions has been followed closely by increasing instances of fraud.
The FBI reports that losses from cybercrime nearly doubled between 2019 and 2021, from $3.5 billion to $6.9 billion. However, the report also listed advancing cybersecurity as one of the key benefits of digital payments, alongside operational agility and customer data technology.
Source: FBI
The opportunity for businesses in adopting digital payments
Businesses, especially consumer-facing ones, continue expanding into digital payments. The report found that while 36% of the respondents are just getting started with digital payments, around 43% expect to expand their offerings in the next 18 months. Moreover, around 37% are venturing into cross-border transactions, while 18% are dabbling with cryptocurrencies.
The reasons why businesses are adopting digital payments aren’t exactly in line with what the report views as their key benefits. The majority of respondents – mostly C-level executives from around the world – said they’re doing it to give customers more checkout options.
Around 70% of the respondents say they offer digital payments to improve customer experience, providing more payment options and helping them save time, while 48% say it helps them improve operations. 37% intend to reduce processing costs, 36% to expand secure payment options, and 35% to personalize offers to customers.
The challenges of adopting digital payments
Business leaders listed a number of reasons that prevent them from adopting end-to-end digital transactions, among them the perception that doing so will increase their operational expenses. Even just the initial integration is a concern for 49% of the respondents. The idea is that in order to install digital payment mechanisms, firms would have to redo all of their systems, and such a task is daunting. “You’re not going to renovate your kitchen to
the studs just because you need a new stove,” Aaron Press, research director for worldwide payment strategies at IDC, said in the report.
SaaS platforms provide a solution to that with their plug-and-play solutions for launching digital payments.
Another challenge associated with integrating digital payments was cited as building a secure processing network, by 24% of the respondents. With digital, the threat of cyberattacks is rampant, and the risks associated with that are costly. And not just that – even consumers today demand such security from businesses.
So, cybersecurity threats were found to be the biggest challenge in expanding to digital payments, cited by around 59% of respondents. Businesses are hence prioritizing advanced security capabilities, trying different methods like digital tokens for enhanced authorizations, using biometric authorization, and deploying artificial intelligence. 42% of these businesses say that a reason for such security steps is simply that it's important to their customers.
For smaller businesses, the report argues that inertia has a big role to play in slow adoption, saying companies need a compelling reason to change. The report then says data could be that reason.
Moving to digital means that information from every transaction within a business – whether it’s money coming in or flowing out – is stored. This data can be easily tracked and analyzed to understand a business’ cash flows better and make better financial decisions.
Digital payments are continuously growing, with ever more businesses looking for ways to implement them. As with any new technology that fundamentally changes business operations, digital payments also come with their own risks. However, as the industry matures, so does its ability to fight off those risks.