National card and national payment schemes have reason to be optimistic about their future, in spite of increasing globalisation, according to comprehensive new research into the sector.
National Payments Schemes: Drivers of Economic and Social Benefits? reveals
that domestic payments schemes above all can offer their participants lower costs and products better suited for the local market than international card schemes.
Domestic card schemes run at approximately 45% of the costs of the international card schemes on average, giving them the ability to lower costs for participating banks. Banks in turn can better respond to pressures for low cost payments. Domestic schemes operate at lower costs not only due to their streamlined business models but also because the international schemes spend considerable sums on marketing and work with high profit margins as demanded by the stock market.
The global research unveils that national payments schemes, as low cost providers, have an integral role in promoting financial inclusion, especially through mobile. Especially in the developing world, mobile provides a means for the unbanked population to access formal financial services.
Domestic payments schemes have the ability and inclination to integrate easily with other domestic service providers, such as mobile wallets, enabling them to play a vital part in combating poverty and supporting economic growth in their countries.
The report looks at the role of regulators and central banks in promoting an efficient domestic payments market. The research argues that although most regulators have a remit to remain neutral between market players, they need to step up efforts to ensure fair competition.
Recommendations include banning exclusivity deals between banks and a single scheme provider as well as banning up-front incentive payments by card schemes which distort the decision-making process of banks. The research also suggests that closer links should be forged between competition and payments regulation.
“Payments are about much more than the movement of money. An efficient payments industry can put more money in people’s back pockets, alleviate poverty and drive numerous economic and social benefits. In 2014 the role of national payment schemes is more important than ever,” explains John Chaplin, co-author of the research.
“Regulatory changes pose a particular challenge for domestic schemes in Europe which may cause them to redefine their role and business models. Payments are now a geopolitical issue, as evidenced by MasterCard and Visa closing down the programmes of some Russian banks in the wake of the Ukraine crisis.”
“Our research demonstrates that national payments schemes have the potential to thrive and benefit their local markets in spite of increasing pressure from the international schemes,” Chaplin continues.
“However, they must up their game by acting more commercially and potentially by changing their ownership models. Sharing technology with one another is one way of reducing costs, a benefit which can be passed on to end users. Schemes must also make sure to innovate and invest in new functionality. Multibanco in Portugal and Quickteller in Nigeria are two examples of domestic schemes offering additional services above and beyond basic payments.”
The full report can be found here
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