According to the a new report by Timetric, rising competition from domestic payment card networks is set to significantly alter the current operational model of international card networks.
The ability to provide transaction facilities for up to 40% cheaper than international networks is expected to be the key growth driver for domestic networks, especially in emerging markets. The growth of domestic networks, especially in countries like China and India, has led international networks to reexamine their business models.
Where domestic networks are focusing on growth
The international giants such as Visa and MasterCard may already own the majority of the market, but they should not be complacent; they have lagged behind in exploiting business opportunities in micropayments, social benefit programs, and the rural populations of small financial institutions. These relatively unexplored markets are becoming the primary focus of domestic card networks to expand their businesses and increase revenues.
Over the next five years, Timetric predicts that domestic networks will concentrate on small enterprises that do not currently accept card payments. This move will be aided by the availability of technologies such as mobile point of sale (MPOS) solutions, which will make acceptance of card payments feasible for smaller, more remote merchants.
Domestic networks in China and India increase competition
The success of China’s UnionPay and India’s RuPay are expected to fuel the trend. The emergence of government-backed networks is expected to play a crucial role in the redistribution of market share; they are predicted to lower the cost of transactions and help card services reach a larger market through increased competition.
According to the report, international networks are expected to look for options to reduce their cost structure to compete with the domestic cards, but the domestic cards are already spreading internationally. Domestic Chinese provider UnionPay has taken the initiative to make agreements with businesses in areas Chinese tourists visit for their convenience and to reach more merchants. The number of outbound travelers from China is expected to surpass the number of outbound travelers from countries like the US and Germany in 2013.
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