Shift from physical to digital spurs payments innovation and growth, but hidden payments challenge regulators and banks
Non-cash payment volumes are expected to have continued on a high growth trajectory in 2014, driven partly by mobile financial services, states a new study.
Projected to grow at a rate of 8.9% to reach a record high of 389.7 billion transactions, non-cash payments for 2014 are predicted to be up from 2013’s 7.6% growth rate, according to the World Payments Report 2015 from management consultancy and IT services group, Capgemini, and the Royal Bank of Scotland (RBS).
Driven by a combination of factors including robust growth of non-cash transactions volumes in emerging Asia and widespread adoption of mobile technology for payments in mature markets, which include Australia, Japan, Singapore, and South Korea, the Eurozone, the US and Canada, the volume of non-cash payment transactions grew faster than GDP across all geographies in 2013.
For 2014, growth is expected to have been propelled by the continued economic recovery in mature markets, rapid expansion in China, adoption of mobile and contactless technology, and the global move towards Immediate Payment schemes, which are also known as real time payments.
Non-cash transactions in Emerging Asia are expected to have grown by 27% in 2014 from 22% in 2013 driven by increasing internet use and the adoption of mobile payments. In particular, non-cash payment volumes in China are expected to surpass those in Germany, the UK, France, and South Korea, moving it into fourth position globally, behind the US, Eurozone, and Brazil in first, second and third place respectively.
China posted record non-cash payment growth of 37.7% in 2013 as regulators accelerated the opening of the domestic payments card market to overseas competition and point of sale terminals were rolled out across the country. Mobile payments in China also grew significantly in volume, by 170%, to reach 4.5 billion transactions, making it a core element of China’s payments ecosystem.
Yet the report outlined a threat from hidden payments, or payments processed through non-bank systems. These are now estimated to be as big as around 10% (40.9 billion) of non-cash transactions in 2014 and are expected to grow in the coming years. The lack of coherent data on hidden payments, which include payments made through closed loop cards and mobile apps, digital wallets mobile money, and virtual currencies makes it challenging for banks and non-bank payment services providers in determining optimal operating and processing models in such markets.
As hidden payments are not subject to regulation, there are also concerns about the lack of consumer protection on data privacy, information security, dispute resolution as well as fighting fraud and money laundering and regulation is needed to minimise these risks.
Despite the rise of other competitive payment providers along with new and alternative payment methods including digital wallets and mobile apps, banks are still in a strong position to develop innovations that improve the customer experience. Banks are better positioned than their alternative provider rivals to provide holistic solutions across all instruments and channels which make them more efficient as a single provider of payment services as opposed to having multiple providers for each payments scenario.
As banks continue to enhance their holistic solution offerings, Immediate Payment systems can act as an enabler for banks to develop new value-add propositions and drive business growth.
Regulation also has a role in driving innovation through the harmonisation required for the cohesive global expansion of Immediate Payment schemes. According to the WPR 2015, 86% of payment executives surveyed believe that regulators will need to evaluate and make changes to the existing regulation to make Immediate Payments a reality globally. In particular, the adoption of Immediate Payments is challenged by a lack of interoperability of systems built using different standards in Europe and around the globe. Regulators can help resolve this by working to develop and guide standards and rules to support industry interoperability.
Said Andrew Lees, global sales officer, Capgemini Financial Services: “Each year banks face new and greater challenges in innovating to meet consumer demands for more convenient, faster, more secure and more mobile payment methods. Facing this pressure and the need for new regulatory initiatives to support innovations like Immediate Payments, payment services providers must take a long-term approach for payments processing by building a holistic set of offerings that can deliver value on a global scale.”
