Digital Payments Flourish Amid COVID But Crypto Exchanges Lag Behind

While digital payments surged this year as a result of the coronavirus pandemic, crypto exchanges saw relatively little growth over the same period, according to a study published by the University of Cambridge Centre for Alternative Finance in association with the World Bank.

The survey of 118 regulators from 114 countries revealed that the movement towards a digital economy—accelerated by the pandemic—will increase demand for many forms of fintech activities, such as digital payments and credit services.

While 60% of respondents to the study identified increased usage or offering of digital payments and remittances in light of the pandemic, just 3% observed an increase in the usage or offering of cryptocurrency exchanges.

Notably, the report identified a split between emerging market economies and advanced economies; where 6% of respondents in advanced economies saw an increase in the usage of crypto exchanges, just 2% in emerging economies did so. For digital payments and remittances, the opposite was true, with 65% of respondents seeing an increase in their use in emerging markets, versus 50% in advanced economies.

The study’s findings are indicative of the cryptocurrency market’s relative nascency, and the use of cryptocurrencies as a speculative vehicle instead.

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Nevertheless, regulators are taking an increasing interest in the space. Respondents pointed to “draft guidelines for virtual asset service providers” and reviewing frameworks around blockchain to govern the tokenization of assets, as examples of measures undertaken by regulators in response to COVID-19.

CBDCs see a surge in interest

It’s not all bad news for digital currencies; the boom in digital payments and remittances identified by the report reflects growing interest among governments and banks around central bank digital currencies (CBDCs).

Countries around the world, including China, South Korea, France and the US, are developing or considering their own digital fiat projects, with regulators pointing out traceability and accessibility as underlying benefits for the efforts.

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The report’s authors stated that the study’s findings around digital payments were unsurprising, given concerns regarding the transmission of the novel coronavirus through cash and card transactions. “This also affirms the findings of other studies referencing an acceleration in the shift to digital payments,” they noted in the report.

New risks and challenges

The survey also highlighted emerging risks in the digital economy. Cybersecurity implications (78%) served as the top-most risk for regulators, with operational risks (54%), consumer protection (27%), and fraud and scams (18%) presenting smaller concerns.

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“On systemic risk, a targeted cyber-attack or some other form of external threat on a major fintech company has the potential to disable large parts of the economy without notice,” said a regulator from the Asia Pacific region.