We’re using cookies, but you can turn them off in Privacy Settings. Otherwise, you are agreeing to our use of cookies. Learn more in our Privacy Policy.

Cashless Payments Industry: Sector Analysis

Watch the Webinar

Executive Summary

Digitalisation is becoming entwined with every facet of our lives. Nowhere is this more evident than in the payments space, where the world of physical banknotes is gradually being supplanted by the tap of a card or the wave of a smartphone or wearable.

The statistics bear this out. Total worldwide digital payments hit US$4.1 trillion in 2019 and are estimated to hit US$6.7 trillion in 2023. These numbers may be fantastic, but they actually exclude business-to-business transactions, meaning the total figure is far higher.

The ongoing COVID-19 pandemic serves as another catalyst for this industry. People are more conscious about the potential perils of physical contact and in some markets people are being implored to remain at home. Looking at the near future, the rollout of 5G will provide further impetus for the industry to embrace digitalisation.

Against this backdrop, a panel of industry experts convened to host an interactive webinar examining the growth of this industry. They also presented a useful four-part framework for investors interested in this industry to use.

Notable participants included representatives from the National Bank of Ukraine (NBU) and its fintech association, who presented a revealing case study about how the cashless payments industry can quickly sprout in unexpected locations. The panel also featured the CEO of Malaysia’s leading payment service provider and the head of policy for the Hong Kong SAR branch of the Association of Chartered Certified Accountants (ACCA).

The main takeaway of the webinar is this: cashless payments are swiftly growing in all areas of the world — even those you might not suspect. This growth has led to significant investment opportunities within this space. With high valuations and oligopolistic “winner-takes-all” structures, however, investors often are left wondering how to separate the companies with solid growth potential. This is where the broad analytical process covered in this webinar can help.

A Look at Ukraine’s Burgeoning Cashless Payments Industry

According to Rostyslav Dyuk, chair of the Ukrainian Association of Fintech and Innovation Companies, “Ukraine’s cashless payment industry has seen impressive twenty-fold growth in just a few short years.” In 2016, the cumulative valuation of the entire sector was estimated at a negligible US$30 million. Three years later, that number was closer to US$650 million. This might be still small compared with the more advanced economies, but it demonstrates how fast the industry can move.

In terms of the popularity of contactless payments, Ukraine is now fourth globally, with almost 80% of all point-of-sale terminals supporting this option. “In 2019, non-cash transactions overtook their cash counterparts by a slight margin, accounting for 50.3% of the total value of all card exchanges,” says Dyuk. This was the continuation of an upward trend that had been seen for the preceding five years.

It is true that the Ukrainian cashless payments industry still has some way to go. As Dyuk notes, in contrast to the more advanced economies, there is a distinct absence of venture capital and private equity in the industry. As he succinctly puts it: “Much of the funding still comes from the three ‘Fs’ — friends, family, and fools.” As such, a thin public stock market also means that practically the entire industry remains in private hands.

While this can be considered a drawback, there are surprising positives as well. Dyuk has observed that about 80% of local fintech companies had reached at least breakeven profitability. It seems when your investors are your friends and family, and without venture capitalists pushing the “growth-at-all-costs” narrative, founder behaviour can differ significantly.

Nonetheless, the expansion of the Ukrainian cashless payments and fintech space has been remarkable. With that in mind, what can we learn from this fascinating case study?

Top-Down Vision May Be Just as Important as Bottom-Up Growth

Serhii Karpenko, head of the Strategy and Reforming Department at NBU, believes that industry growth can be driven as much from the top down as from the bottom up. This is why, in the latest five-year plan for the Ukrainian financial sector to 2025, supporting the fintech and cashless payments industry has been identified as a key strategic goal — on par with financial stability, macroeconomic development, financial inclusion, and deeper financial markets.

The government and NBU’s 2025 vision is one in which a sustainable Ukrainian fintech ecosystem exists alongside a developed cashless economy and a population with high digital and financial literacy. “This vision will be supported by four key pillars — regulations and policies, capital, demand, and talent,” says Karpenko.

Some select key performance indicators (KPIs) for this vision include the following:

  • Lift the percentage of citizens holding some form of bank account to 80% (from about 63% currently)
  • Increase the percentage of small and midsize enterprises that accept cashless payments to 70% (from about 38%)
  • Have at least 20 companies in each fintech vertical, such as regtech and insurtech (from about five presently)
  • Increase the Ukrainian populace’s financial literacy index growth score from 11.6 to 12.5 (based on Organisation for Economic Co-operation and Development scoring)
  • Launch a full-fledged regulatory sandbox and increase the number of products and services tested in the sandbox environment to about 16 to 20 a year
  • Obtain membership of the Global Financial Innovation Network

To create incentives that will help fulfil these KPIs, the government is launching the aforementioned regulatory sandbox to rapidly test innovative products and services and a “mini MBA” programme. The objective is to provide the industry with an academic base on which to build various fintech verticals, such as Big Data and cybertech, focusing on open banking.

A notable takeaway from the Ukrainian case study is that for a cashless payments ecosystem to flourish, progress must be driven from the top down and the bottom up. “With a high number of mathematics and IT specialists in the country, Ukraine has already demonstrated its capacity for bottom-up growth,” says Karpenko. To take it to the next level, top-down guidance and incentives are needed, too.

A Four-Part Framework for Assessing the Cashless Payments Sector

In the second part of the webinar, Eunice Chu, FCCA, head of policy at ACCA Hong Kong, presented an overview of the joint sectoral analysis report between the CFA and ACCA. “Development of the global cashless payment sector displays a distinct non-uniform trend — creating pockets of opportunities,” notes Chu. The report detailed the four key components investors should look at when assessing investment opportunities in this sector.

  • Market structure: The structural demographics of a particular market, including population age, spending patterns, ease of internet access, smartphone penetration, and level of cashless activity
  • Competitive landscape: Market concentration between customers and merchants, barriers to entry, regulatory and operational restrictions, legacy systems compatibility, and any advantages that accrue to incumbents
  • Demand drivers: Factors that influence demand, such as the types of payment methods offered, revenue mix, e-commerce market share, value-added services to end users, and size of the online payment ecosystem
  • Individual operations: Company-specific aspects, including growth in transaction value and volumes, financial metrics, investment infrastructure, fee structures, and the level of monetisation in a company’s user base

In the subsequent Q&A, the panel members also shared interesting insights with prospective investors and industry practitioners. According to Danny Leong, CEO of GHL Berhad, Malaysia’s leading payment services provider, “the number one company metric investors should look at is TPV — total payments value. This is the full value of all payment transactions that flow through said company.”

Leong offers a simple breakdown of the two major factors that influence TPV: the number of payment schemes (e.g., AliPay and Visa) available and the size of the merchant base, which is also influenced by the geographies in which a company operates.

He also addressed a panellist question on the high valuations inherent to the industry. From his perspective — that of an acquirer — he notes that when his company buys a smaller payments business, it automatically capture all its transactions and merchant base, which tend to keep expanding. It is very much a growth-driven industry, which contributes to high valuations.

Tailwinds, Regulatory Trends, and Market Opportunities

The panellists unanimously agreed that the pandemic is a tailwind for the cashless payments sector. Not only has it forced banks to digitalise but also customers are now more accepting of contactless payments, for obvious reasons. However, as Dyuk shares, “There are downsides, and payment volumes from hard-hit industries like tourism and hotels are experiencing steep falls.”

On the regulatory front, Alan Lok, CFA, director of Ethics Education and Professional Standards at CFA Institute, observes that he has “seen a trend where industry participants strive to follow the standards set by whatever is seen as the strictest regulatory body — currently the European Union (EU).”

Dyuk concurs, noting that the Ukrainian fintech industry has been experiencing some stress when complying with EU regulations, especially those pertaining to open banking, data privacy, and anti-money laundering. This is despite Ukrainian laws being laxer by comparison.

As for where the current market opportunities lie, Dyuk confidently points to Ukraine, referencing the relatively young age of the industry. For Leong, the answer is ASEAN, which he calls a “cashless payment melting pot,” observing the high percentage of unbanked citizens but with a significant smartphone penetration rate.

About the Author(s)

Eunice Chu
Eunice Chu FCCA

Eunice is responsible for elevating ACCA’s brand equity through stakeholders’ engagement, speaking in forums and training events, conducting research projects, article contribution and media commentaries. Eunice is the co-author of the "Sector Analysis: A Framework for Investors" research series jointly published by CFA Institute and ACCA. Besides her research work, Eunice also assists ACCA’s advocacy and educational work, giving presentation and training sessions on financial reporting, corporate governance and professional ethics issues in Hong Kong, Vietnam and Cambodia.

Danny Leong
Danny Leong

Danny Leong defines the strategy and oversees the operations of all GHL businesses across ASEAN, namely Malaysia, Thailand, Philippines, Indonesia, Cambodia as well as Australia. His biggest accomplishment to date is to strategies and implements GHL’s merchant acquisition business for card, mobile and online payments coupled with reload and bill payment collection, loyalty and other SME services.

Alan Lok
Alan Lok CFA

Alan Lok, CFA, researches and writes on investor protection issues and capital market structure and coauthored a CFA Institute position paper on capital market integrity, titled “Portfolio Pumping in Singapore: Myth or Reality”. Mr. Lok has more than 10 years of equity research experience, spanning various industries and sectors.

Serhii Karpenko
Serhii Karpenko

Serhii Karpenko has over 10 years’ experience working in the banking sectors and in IT.

Before he took office at the NBU, Serhii Karpenko was an advisor to the Chairman of the Board of Oschadbank and was in charge of the Center for Strategic Change for more than three years. Between 2011 and 2015, he went from Senior Manager of Projects and Programs to Head of the Office for Change and Integration to Director of the Department of Strategic Project and Process Management at the First Ukrainian International Bank PJSC (FUIB). Key projects at FUIB PJSC included the bank’s migration to a new core banking system and the merger between FUIB and Renesans Kredyt bank.

In 2008–2011, Serhii Karpenko was Director of the Training and Consultancy Center at the Ukrainian IT company SI BIS LLC.

He has eight years’ experience in educational activities: in 2008–2011, he was manager of the MBI project (which consisted in specialized training for MBA-level IT directors) at the KROK University of Economics and Law; in 2004–2008, he was Deputy Chairman of the Department of Communications and Information Security and Associate Professor at the Department of Security of Information Technologies at the National Aviation University.

In 2000–2004, he was Deputy Director of the Training Center for Aviation Security at the ICAO, where he was in charge of the launch of the Regional Center for the Training of Aviation Security Specialists.

Serhii Karpenko has two educational degrees: he graduated from the National Aviation University with a major in Computer Systems and Networks in 2008 and from the Kyiv International University of Civil Aviation, where he majored in Management of International Economic Activities of Enterprises, in 1998. In 2009, Serhii Karpenko earned his PhD in Computer Systems and Networks, and Telecommunications.

Rostyslav Dyuk
Rostyslav Dyuk

Chairman of the Ukrainian Association of FinTech and Innovative companies.

More than 14 years in financial and banking industries, including C-level positions in banks.

Before Association establishment worked as Team Lead for 2 years for USAID Financial Sector Transformation Project and was responsible for Digital Finance.

The ideologue and the author of the first Ukrainian FinTech Catalogue and ecosystem Map.