Capgemini & RBS World Payments Report 2014– A Retrospective

I

Our November 13, 2014 webinar, “The World Payments Report Turns 10 – Where Are We Now, What Does the Next Decade Hold?” is now available for replay.  Here is a summary:

Capgemini and RBS are celebrating our tenth anniversary of analyzing the quickly evolving global non-cash market.  For this year’s report, payments executives from thirty-one financial institutions around the globe shared their opinions with our industry experts.  The report presents the regulatory landscape and strategic recommendations and thought leadership on how readers can navigate through existing and upcoming industry challenges.

Looking back over the ten year history of the report, we correctly predicted some things, but other things surprised us.  For example, we correctly forecasted the impact of non-bank payment services providers, fragmentation of the value chain, regulation’s role in changing business models and the growing importance of payments as it has climbed up the agenda and reached board level.  On the other hand, we were surprised at the fast development of smart phones, cloud and real-time payments, the stagnant nature of sourcing strategies, the very gradual decline in checks, and the lack of consolidation of automated clearing houses.

Growth and Opportunity

Global non-cash transactions volume growth decelerated to 7.7% in 2012, but accelerate again to 9.4% in 2013, with most of the growth coming from economic recovery in mature markets, and from developing markets like CEMEA and Emerging Asia.  Growth slowed in 2012 partly due to the negative impact of the Durbin Amendment on debit cards in the US. The U.S. also single-handedly comprises nearly all the world’s decline in check volumes.  We expect China’s non-cash payments to surpass North America and Europe over the coming five years.

E- and m-payments growth continues, at 16% and 61% CAGR respectively, and are gradually converging as the distinction between the two diminishes.  In many markets, non-banks have a large share of the m-payments activity. In the U.S. the tipping point for mobile wallets is now reached with introduction of NFC enabled iPhone plus Apple Pay wallet.

Although banks have cornered the market for corporate cross-border payments, retail cross-border payments are a large untapped opportunity.  There is nearly one trillion dollars of remittance and consumer commerce that is underserved.

Key Regulatory and Industry Initiatives

We classify key regulatory and industry initiatives as cascading, complementary, or competing. As they continue to increase around the globe, their focus shifts from a regional to a global level, creating a cascading effect. For example, real-time payments are catching on in several countries – UK, Australia, Singapore, Nigeria, Ireland, Poland and the Nordics, and perhaps the U.S. We also rank the initiatives as they support risk reduction, standardization, competition and transparency, and innovation.  And this year, 60% of the initiatives support innovation – for example mobile payments, and financial inclusion.

Innovation & Transformation

Both retail and corporate customer’s demands are driving the need for payment processing transformation and innovation.  These demands include “anytime/anywhere” payments, value-added services, data insights, and enterprise-wide visibility to cash and working capital.  For these reasons, we found that the majority of payments firms view transformation of processing infrastructure as a top priority in both the short- and longer-term.

While firms need a long-term clear-eyed vision for a robust transformation, common business constraints dictate an agile approach comprised of short-cycle incremental projects, with each phase delivering value, while building toward the ultimate goal. That balancing act is very challenging.

Crystal Ball for the Next Ten Years?

As non-cash transactions more than double by 2024, we predict a radical shift as today’s developing markets exceed the size of mature markets, and thus become the focus for new products.  In several major countries, we expect banks will no longer be at the center of payments and will be sharing up to half of the value chain with non-banks.

These coming ten years will also bring continued incremental change along with disruptions.  Continued changes will include regulation, competition and innovation leading to both fragmentation and consolidation, and the need for consumer protection.  Disruptions are harder to predict but we foresee the rise of new currencies, not just crypto-currencies but also proxies including air-time and loyalty points.  Cash might actually disappear in some regions.  The final disruptive force is the tension between security and convenience, explaining the rise of new identification methods such as facial and voice recognition.