Developing markets are driving rapid growth in non-cash transactions but banks are facing multiple barriers to the creation of a new ecosystem for payments
Digital payments are experiencing a boom, driven by developing markets, according to the World Payments Report 2018 has launched from Capgemini and BNP Paribas. However, the innovation landscape in payments is uncertain as BigTech entrants make their presence felt, and incumbents face technical and regulatory complexity in the development of new collaborative payments ecosystems between themselves and FinTechs. The report finds that it will take more than bank-led initiatives to grow the new payments landscape. The broader financial services community – including public-sector organisations, regulators and third parties – must determine their new roles and work together with large payment users to ensure a smooth, balanced, and robust payments ecosystem development.
Developing markets are driving non-cash growth
The report forecasts that non-cash transactions will post a compound annual growth rate (CAGR) 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 482.6billion.
This non-cash boom is being driven by developing markets, 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. “Australia looks to be a stand out benchmark among its global peers achieving 11.1% growth to reach a total of 10.6b transactions and positioned number 5 globally in non-cash transactions per capita, and with a 9.5% CAGR may surpass US in 1 to 3 years. This is attributed to a myriad of digital initiatives including payment systems modernisation projects, prolific use of contactless cards and an approach to Open Banking that could see Australia swiftly catching up with the UK Open Banking program. Government initiatives and close industry collaboration look to be the key to success, by ensuring both supply side push is matched with demand side pull,” said Philip Gomm, FS Practice Leader, Capgemini Australia.
Developing markets are set to show a 21.6 percent CAGR, led by emerging 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.
BigTechs are opening their e-wallets
Disruption of the payments market is accelerating as new technologies take hold and BigTechs and FinTechs make their presence felt. 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 BigTech providers.
Innovation faces complexities
Although disruption is accelerating, and market entrants are proliferating, there are regulatory and technical complexity challenges to the development of innovative new payments ecosystems, along with the expectation of the current level of security. Only 38 percent of bank executives surveyed for the report 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,” said Anirban Bose, CEO of Capgemini’s Financial Services and member of the Group Executive Board. “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. “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.”
Indicative of the complexities that surround innovation in the payments marketplace, many respondents said that 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 authorisation standardisation (59.3 percent).
On Distributed Ledger Technology (DLT), 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 shows how key regulatory and industry initiatives (KRIIs) 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.
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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.
A global leader in consulting, technology services and digital transformation, Capgemini is at the forefront of innovation to address the entire breadth of clients’ opportunities in the evolving world of cloud, digital and platforms. Building on its strong 50-year heritage and deep industry-specific expertise, Capgemini enables organisations to realise their business ambitions through an array of services from strategy to operations. Capgemini is driven by the conviction that the business value of technology comes from and through people. It is a multicultural company of 200,000 team members in over 40 countries. The Group reported 2017 global revenues of EUR 12.8 billion.
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About BNP Paribas and BNP Paribas Cash Management
BNP Paribas is a leading bank in Europe with an international reach. It has a presence in 73 countries, with more than 196,000 employees, including around 149,000 in Europe. The Group has key positions in its three main activities: Domestic Markets and International Financial Services (whose retail-banking networks and financial services are covered by Retail Banking & Services) and Corporate & Institutional Banking, which serves two client franchises: corporate clients and institutional investors. The Group helps all its clients (individuals, community associations, entrepreneurs, SMEs, corporates and institutional clients) to realise their projects through solutions spanning financing, investment, savings and protection insurance.
For information about BNP Paribas Cash Management, please visit cashmanagement.bnpparibas.com
 BigTechs are large, multinational technology firms such as Google, Amazon, Facebook, Apple, Alibaba, Tencent, etc.
 Globally, there are multiple real-time payment schemes currently with different criteria pertaining to speed, volume, value, and settlement, for example, IMPS (India), FAST (Singapore), NPP (Australia), FPS (UK)