From barter to cash, to digital options, the way people pay for things has changed dramatically over time. Innovation in financial services technology, also known as financial technology (fintech), is reshaping the payments industry.
In a report by MSCI, it reviewed the popularity of digital wallets and how investors can track the performance of fintech companies through indices.
The most important international payment methods
Globally, cash and cards no longer make up the bulk of retail transactions. Instead, digital wallets have become the go-to choice for online shopping. These wallets store an individual’s payment information on their device, eliminating the need to carry physical cards. Apple Pay and Google Pay are prime examples.
Studies show that digital wallets currently account for half of the total value of online commercial transactions, while credit cards account for only 22% of the total.
Digital wallets are expected to continue to grow significantly, with their share expected to rise to 61% by 2027, while the share of credit cards will decline to 15%.
Debit card share is also expected to decline from 12% to 8%, while account-to-account transactions will see a slight increase from 7% to 8% by 2027.
As for in-store shopping, digital wallets currently account for 30% of total commercial transactions, and this percentage is expected to rise to 46% by 2027. In contrast, the percentage of cash transactions is expected to decline from 16% to 11% during the same period.
Motivations for using digital wallets
One of the most prominent factors that contributed to the growth in the use of digital wallets is the low cost of customer acquisition compared to other financial products, as the cost of acquiring a customer for a digital wallet ranges around $20, while the cost of acquiring a customer for a credit card ranges between $250 and $1,500.
Digital wallets also offer consumers many benefits that vary depending on the type of wallet. According to one study, the main reason for using digital wallets was convenience, with 41% of survey participants indicating convenience as the primary reason, while 23% indicated that they use them for rewards or loyalty programs, and 16% preferred them to track purchases. 14% indicated that security was the reason behind their choice of digital wallet, while 4% expressed interest in the efficiency of the payment process. Nearly half of consumers confirmed that they would stop shopping with any merchant who does not accept payment using digital wallets, according to Forbes Advisor.
MSCI and FinTech Innovation
MSCI FinTech indices include companies that are linked to the development of new products and services as a result of technological innovation in the financial sector. These indices include the MSCI ACWI IMI FinTech Index, which includes securities from 23 developed markets and 24 emerging markets, and the MSCI World IMI FinTech 30 Index, which provides details of the 30 largest global companies by market capitalization related to this topic.
The MSCI ACWI IMI FinTech Index is primarily made up of large companies in the financial or IT sectors, such as Nvidia, Apple, Tencent, Mastercard and Visa. Since 2014, the index has outperformed the benchmark in 8 out of 11 years. In 2024, the index has grown 26.8% year-to-date, while the MSCI ACWI IMI is up just 17.8%. In 2023, the index has grown 29.3% compared to 21.6% for the MSCI ACWI IMI.
MSCI's objective indices are based on clear and transparent rules, and are regularly updated to take advantage of technological innovations in various sectors.