Here's Why Digital Spending Is Set to Explode in the Next Five Years

Current digital spending is sitting right around $5.5 trillion, but as the industry continues to grow and mass adoption increases, experts expect that number to almost double past $10 trillion in the next five years. Already seen as a superior payment option by many, digital wallets have rocketed in popularity in the last year due to the increased demand for contactless payments thanks to the global pandemic. According to a recently conducted study, in 2025, citizens of the world may complete half of their payments via contactless and e-commerce based options.

Asia Is Leading the Way

Although digital spending is still quite limited in North America and Europe, Asia has been leading the way in digital wallet spending and adoption. Through centralized apps like WeChat's WePay and Alibaba Group's Alipay, billions of spenders and merchants now use digital apps to pay for everyday items all over China. This adoption has been pervasive, with small businesses putting up QR payment codes to accept digital payments easily.

China has taken it one step further though, recently creating a digital representation of their fiat currency, a digital Yuan. Fully regulated by the People's Bank of China, the Chinese central bank, the digital Yuan will allow easy access and transfer of payments for its citizens. China hasn't created this digital version solely for Chinese use however, as they see it as a way to greater compete against the US dollar worldwide. Since the Chinese currency will be transferable through an app, it will be much easier for anyone to gain digital Yuan access when compared to physical cash.

Big Changes for Everyone

This payment structure may already be acceptable amongst certain populations, but it will still take greater adoption until digital wallets and digital spending are accepted widely around the globe. Merchants will inevitably have to adopt, though, since there is a clear consumer trend towards digital payments, which is accelerating under current global conditions.

Another undeniable factor that will contribute to the increase of digital spending is consumer access to smartphones. Previously, smartphones were costly commodities, a new gateway to the internet that only citizens of developed nations could afford. With increased technological innovation, smartphones have decreased drastically in price, an aspect that will serve those who could never before afford one. With billions of people around the world unbanked, smartphone access will create their first opportunity to participate in the financial system. People will now be able to safely store their wealth, spend it, transfer it, and take part in other financial transactions previously inaccessible to this part of the population.

As financial technology becomes available to billions for the first time, and the demand for contactless payments grows due to technological ingenuity and looming health concerns, digital wallets are setting themselves up to take over the transactional space. More users will begin to adopt them, leading to merchant adoption, which will incite more users to download digital wallets, creating a snowball effect. We can already see the growing trend all across Asia; it's only a matter of time before the whole world is using digital spending applications.