Developing markets drive digital payments boom

SOURCE: Mobile Payments Today

Developing markets are driving a global boom in digital payments, according to the World Payments Report 2018 from Capgemini and BNP Paribas. However, the innovation landscape is uncertain as "BigTech1" entrants make their presence felt and incumbents face technical and regulatory complexity in developing collaborative payments ecosystems between themselves and fintechs.

More than bank-led initiatives will be needed to grow the new payments landscape, the report noted. The broader financial services community — including public-sector organizations, regulators and third parties — have to work together with large payment users to ensure a smooth, balanced and robust payments ecosystem, according to a press release on the report.

Non-cash transactions are expected to post a compound annual growth rate of 12.7 percent through to 2021, following growth of 10.1 percent in 2015-16, which saw the total volume of non-cash transactions reach $482.6 billion.


Developing markets lead growth

Developing markets are driving the non-cash boom, with Russia (CAGR of 36.5 percent), India (33.2 percent) and China (25.8 percent) as notable movers during 2015-16. Mature markets maintained steady growth of more than 7 percent.

Developing markets are set to post a 21.6 percent CAGR, led by Asia at 28.8 percent over the next five years. By 2021, developing markets are expected to account for around half of all non-cash transactions worldwide, overtaking the mature markets for the first time, whose current share stands at 66.3 percent.


Big tech firms open e-wallets

Disruption of the payments market is accelerating as new technologies take hold. In particular, e-wallets are on the rise and present a major market opportunity for non-traditional payments providers. In 2016, e-wallets accounted for 8.6 percent of non-cash transactions (a volume of $41.8 billion), of which 71 percent were facilitated by big tech providers.

Although disruption is accelerating and market entrants are proliferating, there are regulatory and technical complexity challenges to the development of innovative new payments ecosystems. Only 38 percent of bank executives said they were "planning an anchor role" in new payments ecosystems.

"As demand for digital payments is strong, especially in developing markets, some banks may want to revisit their choice to not seek an anchor role in the new emerging payments ecosystem," Anirban Bose, CEO of Capgemini’s Financial Services and a member of the group's executive board, said in the release. "With their significant market share in the payments industry and implementation of new technologies, banks are in a unique position to shape the marketplace. They can also create new revenue streams through innovative, collaborative relationships with fintechs and active participation by the broader financial services community."


Like banks, corporate treasurers should also consider their role in the new ecosystem as they expect value-added services that are safe, efficient, reliable and global and could co-design these services with banks.

"Large payments users are also a key constituency in the evolution of innovation in the payments industry. Without their participation, payments services providers are missing a vital opportunity to shape new offerings in transaction banking such as in cash aggregation, cash forecasting and automated treasury," said Bruno Mellado, head of international payments and receivables at BNP Paribas, in the release. "These offerings could equip corporate treasurers with the means to move beyond a tactical or operational role and towards a more strategic one for their companies."


Innovation faces complexities

Many respondents said adoption of a real-time payments infrastructure was being inhibited by lack of interoperability between schemes (identified by 74.1 percent of executives) and weak data and authorization standardization (59.3 percent).

Regarding distributed ledger technology, 85.9 percent highlighted lack of interoperability, 83.1 percent lack of regulatory clarity, and 77.1 percent ability to scale, as factors limiting adoption.

The report also noted regulatory and industry initiatives are threatening to create conflicts as they spread from a regional to a global level. Conflicting KRIIs pose implementation and operational challenges that could hinder the transition to new payments ecosystems. Examples include the Fifth Anti-Money Laundering Directive (5AMLD) and PSD2 conflict, as well as GDPR and PSD2.

The World Payments Report 2018 is comprised of primary research based on executive interviews and an online survey. This edition also includes the introduction of the Payments Open Banking Assessment, which demonstrates the state of open banking in 16 countries from a payments perspective.