World Payments Report 2014

Non-cash payments volumes are expected to grow 9.4% to reach 366 billion transactions in 20131, fueled by strong growth in developing markets and the use of credit (up 9.9%) and debit cards (up 13.4%^[1]).

With the continued acceleration of electronic and mobile payments growth and ongoing regulatory pressures, the payments industry is seeking to find new and innovative ways to support customer demands, according to the 10^th annual World Payments Report from Capgemini and Royal Bank of Scotland (RBS).

Developing markets continue to be pivotal to growth

Overall, more than 50% of global non-cash payment growth comes from developing countries despite them only making up one quarter (25.5%) of the market size at 93 billion transactions. China remains a relatively underdeveloped market for non-cash transactions but its population and growth rate suggest in certain conditions that it could soon outstrip the US and Eurozone within the next five years.  Currently, one in five people in the world that are using mobile banking, lives in China.^[2]

Alongside China, growth rates for Central Europe, Middle East & Africa (CEMEA) followed closely at 23.8%, emerging Asia at 22.8%, and Latin America at 11.0%.

Despite high growth in developing markets, the US and the Eurozone are still ahead in the number of non-cash transactions made per inhabitant. Finland, with 448 transactions per person per annum, continues to be a clear leader and recorded growth of 10.6% during 2012, outstripping other nations in Europe and North America. The US has the second highest number of non-cash transactions per inhabitant, at 376, but grew by only 2.6% for 2012.

“Developing markets have continued their growth story, recording an impressive 18.3% rise compared with 4.5% across more mature markets in 2012. These significant growth levels, and even higher predictions for next year’s World Payments Report, represent a huge opportunity for the industry,” says William Higgins, Managing Director of Payments, RBS.”

“China, for instance, is one to watch over the coming years, with the report showing that if growth rates remain at the current high level, it could become the largest market for non-cash transactions within just five years. These soaring growth rates in key markets put pressure on the global payments arena to innovate to meet rapidly increasing consumer demand.”

E- and m-payments are converging and changing the payments playing field

Increased use of tablets and smartphones is creating a convergence of e- and m- payments, posing new challenges for Payments Services Providers (PSPs).  In 2015, m-payments are projected to grow at 60.8% while e-payments growth is forecast to decelerate to 15.9% annually over the next year, as more people use mobile devices to make payments.  This trend is adding to the pressure on PSPs to modernize their payments processing infrastructures to support the wide-range of customer-facing innovations.

“This year’s World Payments Report found the majority of traditional payments providers have made the transformation of payments processing a priority in the short-term,” explains Jean Lassignardie, Chief Sales and Marketing Officer for Capgemini Financial Services.

“However, the pressure is on from both competition and new regulatory initiatives to provide next generation innovations like Square, IZettle and Swift for tangible customer value.  This requires providers to develop a long-term vision for payments processing that can be tactically executed through strategic, agile, short-cycle projects where quick wins are captured while building longer term value-add.”

The report also cites medium and longer term transformation priorities as having a single integrated payments platform (with a common base for both retail and corporate payments), applying the concept of payments hubs to all areas of payments, and addressing cards/payments convergence as essential support for customer-facing innovations.

The industry is struggling to meet consumer demand

The growth of the industry coupled with the fast pace of new regulation requires flexibility from PSPs to adapt.  More than 50% of new Key Regulatory and Industry Initiatives (KRIIs) are focusing on innovation and some of which also play a significant role to reduce risk, improve transparency and competition and facilitate standardization.  As these new KRIIs are created, there is a tendency for them to cascade across the globe spreading regulatory initiatives across regions.  Initiatives such as real-time payments, pressure on card interchange fees and improved payments governance are examples of cascading regulation.

The report also highlights that many new KRIIs augment the scope of existing initiatives, leading to a complementary reinforcement effect which occurs when new regulation appears across regions correlating to existing regulation and improves the industry’s propositions as a whole. Recognizing these trends will be critical for operational efficiency for PSPs operating across multiple territories.
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1 The World Payments Report 2014 is an annual report which examines the latest developments in the global payments landscape, including payments volume trends, payment instruments (such as cards and checks), key regulatory initiatives and their impact on strategic considerations and options for banks. The transactional data in the report is from 2012. It makes a projection for 2013. Data is not yet available for 2014.

[1] Reported e- and m- payments growth, 2012.  Noting that cards are often used in e- and m- transactions.

[2]China – A New Paradigm in Branchless Banking, CGAP, March 2014

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