The use of electronic (e-payments) and mobile payments (m-payments) continues to show exponential growth, according to the World Payments Report 2012 (WPR12) by Capgemini, the Royal Bank of Scotland (RBS), and Efma. At the same time, debit cards continue to gain market share from credit cards.
Industry estimates show the number of online payments for e-commerce activities is forecast to reach 31.4 billion in 2013, after growing by a sustained 20.0% a year in 2009-13. Analysts believe the number of payments using mobile devices could grow even faster, by 52.7% a year to reach 17 billion in 2013. With only 2.1% of all mobile users making m-payments, the potential for additional growth is still huge.
In addition, although weakness persists in global economic conditions, early data suggests non-cash payment volumes could nevertheless have risen another 8% in 2011. More than one in three non-cash payments globally in 2010 was made using a debit card, up 15.2%, according to the report.
The use of cheques is also declining as card usage grows, although usage ranges from endemic in nations such as the US, India, and France to obsolete in countries such as Sweden. Cheque writing is expected to keep declining as the use of faster and more efficient non-cash payment methods expands, in some cases fuelled by government-led initiatives. In France, for instance, a recent working group set up by the Ministry of Finance recommends reducing the number of cheques processed by 50% by the end of 2017.
Despite the increasing use of non-cash instruments, cash-in-circulation still grew in 2010, though at a slower pace than in 2009.
Two other major themes highlighted in the report are:
- The fact that the BRIC (Brazil, Russia, India and China) concept is no longer valid in payments, with Brazil now the second-highest ranking country by payment volumes after the US.
- The relationship between regulation and innovation, with some regulation challenging innovation.
The standout story is that of Brazil. There were 20 billion non-cash transactions in Brazil in 2010, compared with 13.1 billion in Russia, India and China combined. The report confirms the resilience of payment volumes, as global non-cash payments volumes grew by 7.1% in 2010, reaching 283 billion, although early 2011 indications show only an additional 0.8% growth. Payment volumes in developing markets grew at a much faster rate (16.9%), boosted by a more than 30% increase in both Russia and China.
In an interview with gtnews, Simon Newstead, managing director and head of financial institution market and business strategy for RBS, says: “In previous years, many people have looked at the BRIC countries as a homogenous group. But today Brazil is on its own as the second largest [payments market for non-cash payments by volume]. That said, there is still phenomenal growth rates year-on-year for Russia and China at 30% each, with India coming in considerably lower but still strong growth at 10%.”
The other major theme is the close link between regulation and innovation. The World Payments Report 2011 noted that regulatory pressure was converging with the drive toward standardisation and commoditisation to propel a “fundamental transformation” in the payments landscape in the mid-to-longer term. This year’s report reaffirms that assertion and identifies the ways that regulation is changing the fundamental building blocks in the payments industry.
Newstead believes that payment-related regulations, such as the single euro payments area (SEPA), are helping to innovate. “It is easy to be a SEPA cynic because we have been talking about it for so many years, but it is driving innovation, particularly around the use of the ISO XML standards. That is true technical innovation,” he says.
Jean Lassignardie, corporate vice president, head of sales and marketing, Capgemini global financial services, adds: “Everything that is important in terms of innovation is located in the interaction between the payment industry and customers. SEPA should be the voice of the customers to get to the next level. This, plus the need for differentiating in the single payment area, is the aspect of SEPA that is pushing and accelerating the industry to innovate from the customer’s perspective.”
The SEPA migration deadline is fast-approaching and significant preparation is required. Corporates need to act soon if they have not started their preparations. However, ongoing uncertainty around key aspects of SEPA requirements is holding some corporates back from making that start.
“There is a related cluster of issues,” says Newstead. “The first is the uncertainty caused by the fact that the market may not know until February 2013 which countries are going to announce that they have niche schemes needing longer to transition, as well as which countries are going to use some of the other transition options that were built into the regulation. It will take a number of months before those things become clear.
“Also, as can sometimes be the case with European-level legislation, there are parts of it that are open to interpretation in more than one way. Now there is an ongoing process of trying to develop a common view. I have been involved with the European Banking Federation [EBF] initiative, which is trying to work on this issue with the goal of making sure everyone is working to the same planning assumptions.”
Newstead believes that there may, in the end, be a two-step SEPA migration. “The first step, which in itself is no small achievement, is to get the whole market onto SCTs and SDDs. The second step is a potential further harmonisation phase, which will be post-2014 and looks to identify and address remaining variations, such as the way technical formats are interpreted by different markets or providers. It seems likely that there will need to be a second harmonisation phase to truly achieve the SEPA vision. That is the remaining challenge.”
The report is available for download here.
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