Mobile Payments Soar
Cash Is King No More As Mobile Payments Soar
10/18/2014 @ 7:11AM
Debit and credit transactions are taking the place of
cash around the world — faster in developing countries than in North America
and Europe, according to a recent report by Cap Gemini and RBS, the UK bank.
Total non-cash transactions will reach 365.5 billion in 2013, growing at more
than 20 percent in developing markets but only 5.6 percent in mature markets.
In some cases, developing countries will be able to
leapfrog mature markets by moving directly to newer, more flexible technologies
in payments, similar to their rapid adoption of wireless without the burden of
wire legacy systems.
“Developing markets are establishing initiatives and
upgrading infrastructure in order to boost non-cash volumes,” the report found.
Mobile phones are making a huge impact and that will only increase as
inexpensive smartphones proliferate.
“M-payments are expected to grow by 60.8 percent annually
through to 2015. E-payments will decelerate to 15.9 percent growth during the
same period. There is a gradual convergence of e- and m-payments as the
distinction between the two diminishes.”
Although the report doesn’t hesitate to take its
measurements and projections to a single decimal point — that always suggests
such precision? — the consultancy and the bank admitted being unsure of how to
measure hidden payments.
“Unreported payment niches are being formed as payments
move away from the highly regulated banking sphere. Although non-banks continue
to pursue digital innovations and capture more of the payments market, we are
yet to witness any concrete action on improving and reporting of data for the
hidden market.”
The future of cards should be interesting as the study
found that direct debit continues to grow, although cards still contributed
most of the growth in non-cash transactions at 12.3 percent in 2012.
Debit cards have proven to be highly popular, especially
among young people. Companies like Moven and Simple offer a combination of a
debit card and a mobile phone app to help people track and control their
spending. They have suggested a generational change and a wariness of credit.
The World Payments report suggests another contributing factor — banks “reduced
their focus on the credit card business to avoid an increase in bad debts”
after the 2008 financial crisis.
Direct debit could be a sign of economic recovery.
“Growth in direct debit in mature markets can be
attributed to an improved economy and easing of credit flows compared to
2008. In this improved environment, it
is possible that consumers are less cautious about the timing of their payments
and are willing to pay periodic monthly bills directly from their accounts.”
Checks have almost disappeared in many markets, making up
just 4.8 percent on non-cash transactions in Europe in 2012. The U.S. remains a
checking account powerhouse, a somewhat dubious distinction, accounting for
65.1 percent of global check transactions.
The report producers note that while the non-cash picture
does not show substantial shifts, big changes may be on the way in developing
markets because some countries are upgrading their infrastructure to boost the
use of non-cash transactions. In the U.S., the Fed is expected to release a
recommendation later this year on moving to a real-time payment infrastructure.
Consultants count more than 20 countries that already have real-time payment
systems, including Japan which has had one for 40 years and Mexico which
recently developed its own.
Meanwhile nonbanks will increase the number of
transactions they handle from 1.1 billion in 2012 to 7 billion in 2015, but
banks will maintain the lion’s share reaching 39.9 billion in 2015.
“The mobile payments space is increasingly competitive
with banks and non-banks striving for insightful data, market dominance and
consumer loyalty.” In mobile, non-banks are expected to grow faster than banks.
PayPal processed more than $27 billion in mobile payments in 2013, around 15
percent of total payment volumes, it said.
The data on the Walmart and American Express Bluebird
prepaid card wasn’t any fresher than the Amex presentation at Money2020 last
year, but the growth in the Starbucks card was impressive — 10 million
customers making nearly 5 million transactions per week, totaling 250 million
transaction in 2013, double the previous year. Talk about the value of a good
brand!
Turning to the U.S., the report found significant
innovation, such as Square, that could push change even if individual companies
fail.
”While many of these fledgling companies could fail, they
nonetheless open the way for others to play a bigger role in the payments. This
is causing the overall payments industry to fragment.”
Earlier this week I reported on McKinsey’s view of the
payment industry. Philip Bruno, a senior partner in McKinsey’s Global Payments
Practice, noted that some of the players in payments now — such as Google and
Apple — are huge companies with ample financial resources and will create a
different of competitive threat than the payment startups from the days of
Internet 1.0.
Cap Gemini ’s report said that despite areas of
innovation “the U.S. market generally lags the rest of the world in certain
other payments trends. Checks are still in high use, there is no real-time
payment clearing and settlement system, and adoption of EMV technology has been
slow.”
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