The World Payments Report 2015, Capgemini and The Royal Bank of Scotland Group plc, provides a detailed look into the changing nature of the global payments industry. This year’s report highlights the increasingly fast development of the global payments landscape, focusing on the infrastructures in place to support non-cash payments, both at a commercial and corporate level. By closely examining transaction volumes across the global non-cash payments market, including key regulatory and industry initiatives, the report provides a comprehensive insight into the direction of future growth, including how standardisation and innovation are key objectives across the sector. Here we have aimed to provide an in-depth summary of the World Payments Report’s key findings, which will hopefully be a useful strategic tool for anyone with an interest in the payments sphere.
During 2013 the volume of global non-cash payments reached 357.9 billion, with a growth rate stabilising at the 7.6% mark (up slightly on the previous year’s 7.5%). As expected, growth was largest in the established markets of North America, Europe and Asia-Pacific, accounting for around 75% of the global market. However, developing markets are increasing their share. A more effective collaboration between banks, agencies and telecommunications companies, as well as payments service providers, aided growth in emerging non-cash markets. Credit and debit cards remain the key payment modes, despite a lull in growth from previous years’ reports. Direct debit payments increased to 6.7% in 2013 from 3.9% in 2012, with Europe leading the way in global debit volume payments, accounting for around 50%. Credit transfer payments also showed signs of growth, although the report does appear to signal the demise of the traditional cheque, with consumers increasingly opting for e- and m-payments. Geographically speaking, China moved into fourth place in the non-cash payments market, behind the US, Eurozone and Brazil.
A hidden payment is defined in terms of the following four main categories.
Closed loop cards and mobile apps: Non-bank companies offering loyalty programmes and mobile apps for payments, as well as micropayment options.
Digital wallets: Offering convenient payment method, including PayPal.
Mobile money: Mechanisms that allow customers to make transactions using their mobile phones.
Virtual currencies: Enabling customers to send or receive money without the assistance of a financial institution, with Bitcoin being a prime example.
It’s thought that the hidden transaction market could constitute as much as 10% of the total estimated non-cash market for 2014. The report recommends that this would require any future stake holders to take this substantial market into account. The figures for the hidden payments markets are estimated to have reached between 25 and 40 billion, although the report goes further, indicating that even these numbers may be a conservative estimate. The final figures could represent as much as 20% of the total non-cash global market. Despite its mystic it there is thought to be significant potential for growth within the hidden payments market, particularly within the prepaid apps sector. Mobile payments and digital wallets also show signs of a consistent growth, with virtual currencies growing as more retailers open up to accepting payments.
The simple answer is customer demand. The desire for convenient and faster payment methods is driving development, with numerous non-traditional providers emerging to meet needs. These providers use technological advances to innovate, often stealing a march on the larger and less flexible financial institutions to integrate themselves into the marketplace. Consumers are now also more willing to engage with non-banking institutions in way that they may not have been in the past. Hidden payments methods have also addressed the issue of consumers who don’t necessarily have access to traditional banking methods. Also, as non-banks are only subject to consumer, rather than financial regulation, they are able to offer greater degrees of flexibility and faster transactions. The World Payments Report 2015, Capgemini and The Royal Bank of Scotland Group plc found that 82% of industry representatives believe this is becoming an issue for the banking sector that, restrained by a larger infrastructure and tighter legislation, is struggling to keep pace with the more agile hidden transaction movers. While customers seem to be happy with these innovative methods and are more trusting of non-bank institutions, there are some concerns about data security, lack of regulation and lack of deposit insurance solutions.
For their part, banks and traditional institutions find the lack of data a concern, as they are unable to analyse these payment services to determine optimal processes and models for their own versions. Despite these concerns, the hidden payments market is one that looks certain to become more important in the coming years. Increased willingness to trust on the part of consumers wanting more flexible payments is driving a market that stake holders and regulators would be ill-advised to ignore. It also seems to offer those institutions that can develop their own flexible payments models a chance to tap into new financial markets.
The rapidly changing landscape of non-cash payments, incorporating a large hidden payments sector, has affected core banking areas. Faced with a need to adapt and innovate rather than follow the lead of others, banks are now striving to meet the holistic needs of consumers. To protect existing relationships and ensure on-going success, banks are required to focus on meeting customer requirements, investing in three key areas: value added service, holistic solutions and renewed infrastructure. They need to overcome the obstacles to flexible payment methods, including business model design and the lack of hard data, embracing technology to move towards a more complete payment system.
Owing to an increasing familiarity with online payment, customers have come to expect the same ease of use and immediacy with non-cash payments. This is posing the greatest challenge to the development of transaction processes for banks and traditional institutions. The World Payments Report 2015, Capgemini and The Royal Bank of Scotland Group plc clearly highlights that the non-cash payments market is growing, offering new and exciting opportunities for both consumers and providers developing more efficient transfer processes. Currencycloud finds itself at the very heart of this developing market, driving the transformation of the payments market, opening up international business opportunities to a wider public.